"Debt free except for mortgage"...

[DLgal]

...is like saying "I'm Gluten Free except for my daily loaf of bread."

Sorry, just a pet peeve of mine from this board. How can you leave the single largest debt most people have out of the equation like that?

 

[TwoMisfits]

...is like saying "I'm Gluten Free except for my daily loaf of bread."

Sorry, just a pet peeve of mine from this board. How can you leave the single largest debt most people have out of the equation like that?

I get why people do (although I don't)...usually they come from a renting situation to a buying situation and the bill doesn't change (or it changes in their favor)...so for many, it's either just an equivalent monthly expense (not a debt) or a savings plan (if they feel they will be in the house for the long haul and will eventually get the equity out after paying it off)...

For me, since I lost money on a house sale once, I see it as the debt it is (thus my switch to the 15 year as soon as I could, so I'd never be out money when I sell a house again...

 

[supersnoop]

Because debt tied to an appreciating asset is different than debt supporting a depreciating asset.

 

[Marionnette]

...is like saying "I'm Gluten Free except for my daily loaf of bread."

Sorry, just a pet peeve of mine from this board. How can you leave the single largest debt most people have out of the equation like that?

I understand your point and I completely agree.

I think a lot of people distinguish things like mortgages and student loans as "good debts" vs. credit card and payday loans, which are "bad debts". It's okay to have "good debts" to their reasoning, therefore they are free of bad debts.

I consider us to be "debt-free" because we are long beyond the days of student loans and have never held a mortgage. However, if you were to look at our current credit card statements, we owe a lot of money because we use the credit cards for everything. Those credit cards will be paid in full each month with money that has already been dedicated to those bills. Are we truly debt-free? In the strictest sense, we are not.

 

[DLgal]

Because debt tied to an appreciating asset is different than debt supporting a depreciating asset.

Houses are not always appreciating assets. Houses are a liability. There's always risk that the house won't appreciate or will fall in value. Since mortgages carry interest, you can end up spending more than the house is worth pretty easily.

 

[DLgal]

I understand your point and I completely agree.

I think a lot of people distinguish things like mortgages and student loans as "good debts" vs. credit card and payday loans, which are "bad debts". It's okay to have "good debts" to their reasoning, therefore they are free of bad debts.

I consider us to be "debt-free" because we are long beyond the days of student loans and have never held a mortgage. However, if you were to look at our current credit card statements, we owe a lot of money because we use the credit cards for everything. Those credit cards will be paid in full each month with money that has already been dedicated to those bills. Are we truly debt-free? In the strictest sense, we are not.

Exactly. I consider debt as owing more than you have In liquid accounts RIGHT NOW. I mean, we have a higher net worth than the outstanding credit card and auto loan debts, but it's tied up in investment accounts that are basically off limits. We are building up our liquid cash savings at the moment, but we still owe more than we have. I couldn't pay off all our credit cards and car loan today, so we have debt. When our car is paid off, and our outstanding 0% balance transfer is paid off AND we have enough money in our checking account to pay off our monthly cc spending every week, as it happens, THEN I will say we are debt free. As it stands, using that metric, we have never been debt free yet. Hoping to get there in the next couple years.

We have also never had a mortgage. I'd rather rent than ever own a home. It's way cheaper.

 

[supersnoop]

Houses are not always appreciating assets. Houses are a liability. There's always risk that the house won't appreciate or will fall in value. Since mortgages carry interest, you can end up spending more than the house is worth pretty easily.

There’s risk in any investment, and that risk is concentrated due to the nature of the investment. But nationwide, single family homes have appreciated at a rate of over 6% annually over the past 50 years. Interest covers the risk. The vast majority of people come out ahead.

 

[DLgal]

There’s risk in any investment, and that risk is concentrated due to the nature of the investment. But nationwide, single family homes have appreciated at a rate of over 6% annually over the past 50 years. Interest covers the risk. The vast majority of people come out ahead.

You should probably check your sources. It's more like 3.5%. The 6% figure is based on the average increase in sale price of NEW HOMES, not existing homes, and does not adjust for the increase in home sizes. Going by price per square foot, the appreciation rate of ALL homes is just barely above inflation, at 3.4%. This is much closer to traditional mortgage interest rates.

 

[smiths02]

We have also never had a mortgage. I'd rather rent than ever own a home. It's way cheaper.

It's not usually cheaper. Yes, needing to do a lot of repairs or sell in a down market can change the equation. We turned our first house into a rental and will have definitely lost money over the years.

But renting a similar house around here is much more than our mortgage payment and our house has not needed an extensive amount of repairs in the last 7 years. Our house has also appreciated to the point that if we sold it today, we would pocket at least $90,000 (minus moving fees, realtors, etc.) tax free.

So, in other words, to rent the equivalent, we would have spent more over the last 7 years and have no equity to show for it.

 

[Dakota731]

Since most people can’t afford to pay for a home with cash. We paid $50000 for our first home and sold it for $100000 five years later with no remodel costs. Our current home we built for $125000 and it’s now worth $295000 so buying real estate has been an amazing investment for us. And that doesn’t even count tax benefits of a mortgage deduction!

 

[DLgal]

It's not usually cheaper. Yes, needing to do a lot of repairs or sell in a down market can change the equation. We turned our first house into a rental and will have definitely lost money over the years.

But renting a similar house around here is much more than our mortgage payment and our house has not needed an extensive amount of repairs in the last 7 years. Our house has also appreciated to the point that if we sold it today, we would pocket at least $90,000 (minus moving fees, realtors, etc.) tax free.

So, in other words, to rent the equivalent, we would have spent more over the last 7 years and have no equity to show for it.

It's a lot cheaper where *I* live. We rent a million dollar house for about $3000/month. All the houses in our area are well over $750,000 for a modest 3/2, under 2000 square feet. We could never afford to buy one unless we win the lottery. So, renting it is. Buying is simply not an option at these prices and no, we can't move somewhere cheaper. Just the property taxes alone on this house are $15000/year...

 

[dina444444]

It's a lot cheaper where *I* live. We rent a million dollar house for about $3000/month. All the houses in our area are well over $750,000 for a modest 3/2, under 2000 square feet. We could never afford to buy one unless we win the lottery. So, renting it is. Buying is simply not an option at these prices and no, we can't move somewhere cheaper. Just the property taxes alone on this house are $15000/year...

In my area in LA you would be paying at least double that for a similar price home, so I think you got lucky with your rental price. One of my neighbors homes in on the rental market for $3.1K/month and a similar home just sold for $650K for reference.

 

[smiths02]

It's a lot cheaper where *I* live. We rent a million dollar house for about $3000/month. All the houses in our area are well over $750,000 for a modest 3/2, under 2000 square feet. We could never afford to buy one unless we win the lottery. So, renting it is. Buying is simply not an option at these prices and no, we can't move somewhere cheaper. Just the property taxes alone on this house are $15000/year...

What you said kind of proves the point.

The person you are renting from is okay with making very little on a million dollar investment. After property, taxes, insurance, and repairs...it couldn't be more than $15,000 or so a year, that profit is very little compared to the average rate of return in the stock market (where the average return averaged over the last 90 years would be $90,000 or so). Either you have an unusual deal or the owner is betting that appreciation makes it worth holding onto that asset.

 

[CalDisneyMomof2]

Buying a home when we did was probably the best financial move we could have ever made here in So Cal. We are about to sell in the coming months to reap the benefits. We have about $360k (the low end) in equity from just having the house 5 1/2 years. Our mortgage is equal to what rent is. The tax benefits have been great as well.

With that said, we will rent for a few years and keep our fingers crossed that the market settles down and will DEFINITELY buy again. Not having a full rent payment in retirement (only taxes and insurance) is what is appealing. Our "rent payment" (taxes and insurance) will be around $1,200 in retirement once our house is paid off. Surely rent will be at the minimum $5k a month for what we will own.

@DLgal you're getting a STEAL of a rental. A million dollar home here (north Orange County) is about a $4,000 rental. $3,000 gets you about a $700,000 home. Of course your mortgage payment all depends on how much you put down and current interest rates so it's difficult to say if renting is cheaper than buying. When we buy again in a few years our mortgage will definitely be cheaper than renting.

 

[DLgal]

In my area in LA you would be paying at least double that for a similar price home, so I think you got lucky with your rental price. One of my neighbors homes in on the rental market for $3.1K/month and a similar home just sold for $650K for reference.

Not really lucky. Market price around here (we live in Irvine) for similar homes is $3500-4000. We did get lucky in that our landlord was willing to negotiate the rent down several hundred dollars from the initial listing at $3500 in return for us signing long term leases. We actually pay $3300/month now, and are on year 4. Our rent went up $50 when we renewed our lease in July. A house just sold for $1.05M on our street...same model we are renting. The house next to ours rents for $3450. The house values here have skyrocketed. The house we rent was originally purchased for $785000.

Market rate for rent isn't strictly based on a home's value in an area with high home prices. It is based on the rental market index and on comparable apartment rental prices in the area. No one here could get away with charging $6000-8000/month for a 3 bedroom, 2 bath 1800 sq foot condo. For that kind of money, you can rent a huge house in Newport Beach. Over 50% of my city's residents rents. Our population is over 250,000. Rent is somewhat controlled around here. People list their houses for rent at $7000+ and they just sit there, empty. No one will bite on that.

 

[DLgal]

@DLgal you're getting a STEAL of a rental. A million dollar home here (north Orange County) is about a $4,000 rental. $3,000 gets you about a $700,000 home. Of course your mortgage payment all depends on how much you put down and current interest rates so it's difficult to say if renting is cheaper than buying. When we buy again in a few years our mortgage will definitely be cheaper than renting.

When you have no money down, the mortgage is astronomical. Plus, no one will sell us a house with $0 down these days. We should have bought back in 2004 when $0 down loans were the norm. Houses back then could easily be had for under $500k...we'd be rich now. LOL.

 

[CalDisneyMomof2]

When you have no money down, the mortgage is astronomical. Plus, no one will sell us a house with $0 down these days. We should have bought back in 2004 when $0 down loans were the norm. Houses back then could easily be had for under $500k...we'd be rich now. LOL.

Exactly. Your circumstance is not the norm for most of the country. So Cal and the Bay? Yes. Most people who can put a substantial amount down on a house it is a GREAT financial gain. We only put 8% down so yes, we had to pay PMI but even with that factored in our payment is similar to rentals. Once our PMI falls (which we won't see since we're selling before that happens) our mortgage payment will be about $400-$600 less than the going rentals around here.

We bought our house for 500k so we won't get rich when we sell but we'll have a VERY nice cushion and down payment for our future home (hoping the market doesn't crash but hope it falls a little bit).

@DLgal are your roots in Irvine? Have you considered another part of the OC? Not knocking you at all because Irvine is lovely but as you've pointed out, so expensive!

 

[DLgal]

What you said kind of proves the point.

The person you are renting from is okay with making very little on a million dollar investment. After property, taxes, insurance, and repairs...it couldn't be more than $15,000 or so a year, that profit is very little compared to the average rate of return in the stock market (where the average return averaged over the last 90 years would be $90,000 or so). Either you have an unusual deal or the owner is betting that appreciation makes it worth holding onto that asset.

The woman we rent from is a professional landlord. She buys houses for cash in hot markets and rents them out while they sit there, gaining over 10% in value year over year. She has several houses. All bought new. He "oldest" house is 20 years old and it still has the original tenant. She uses the profits from her rentals to buy new homes and she lives off the rental income. A few smart purchases many years ago has allowed her to keep playing this game. I don't even want to know her net worth. It's gotta be insane. She is super nice and prides herself on providing "nice houses that people enjoy living in." She is not out to maximize her bottom line. She better never die...LOL. We definitely hit the jackpot with her!

 

[smiths02]

The woman we rent from is a professional landlord. She buys houses for cash in hot markets and rents them out while they sit there, gaining over 10% in value year over year. She has several houses. All bought new. He "oldest" house is 20 years old and it still has the original tenant. She uses the profits from her rentals to buy new homes and she lives off the rental income. A few smart purchases many years ago has allowed her to keep playing this game. I don't even want to know her net worth. It's gotta be insane. She is super nice and prides herself on providing "nice houses that people enjoy living in." She is not out to maximize her bottom line. She better never die...LOL. We definitely hit the jackpot with her!

Right, so you got a deal, but she is still making money because she is banking on the appreciation.


I do get your original point...a mortgage is still debt. I'm not as big on the debt free thing as some others, though. My in-laws for instance will still often carry debt on one of their cars. They don't have a mortgage, though (and do own a home). It is just more expensive, tax wise, to cash out investments than it is to pay the small interest charged on new car loans and with no mortgage, they can comfortably pay a car payment out of social security, pension, and investment returns.

 

[DLgal]

@DLgal are your roots in Irvine? Have you considered another part of the OC? Not knocking you at all because Irvine is lovely but as you've pointed out, so expensive!

Well, yes and no. We moved here by chance just before our oldest son was born. We have 2 kids. They are both autistic. We found out back then that Irvine is THE place to be in So Cal with autistic kids because of the amazing special education programs they have in the district here. Nothing even remotely compares anywhere nearby. So, we are staying put until they are both aged out of the district programming. We are military so had to leave for 4 years and live in Northern VA, which was awful in terms of schools. We were lucky to come back a few years ago and my husband will retire out of here in about 2 years. The military thing is also why we have never felt comfortable buying a home. We haven't moved too many times (we got lucky there), but it was always a possibility and we didn't want to deal with buying and selling or being landlords. We could have bought a home in a cheaper area closer to base (Pendleton), but the schools and the special education services are our top priority. Plus, we love Irvine. It's the best place I've ever lived (I've lived in 5 states and 8 cities in my life and nowhere comes close). We are happy to rent forever if it means we can keep living here.

It doesn't hurt that we get a tax free housing allowance of almost $3800/month either. It pays for our rent AND all our utilities, so I can't complain.