Comments on: Debt From Another Angle http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/ Our Journey to a Debt-Free Life Sun, 21 Mar 2010 01:39:42 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: Adam http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/comment-page-1/#comment-22758 Adam Tue, 13 Feb 2007 14:07:25 +0000 http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/#comment-22758 Good points guys. Thanks for commenting. You're absolutely right about short term real estate flipping being a different business. That wasn't my focus for the article. I was more concerned with long-term purchasing solely for living purposes. Good information. Good points guys. Thanks for commenting. You’re absolutely right about short term real estate flipping being a different business. That wasn’t my focus for the article. I was more concerned with long-term purchasing solely for living purposes.

Good information.

]]> By: Druce http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/comment-page-1/#comment-22745 Druce Tue, 13 Feb 2007 08:08:37 +0000 http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/#comment-22745 I like what you added Mike C. When you figure in the added costs of insurance and property taxes, the average person will only see a positive return on their investment after seven years. I feel sorry for the condo flippers in Miami that are hemorrhaging money right now. Adam is right, there are good and bad liabilities. Credit card balances from a strip club are bad debt, while student loans, or a house are generally good debt. The difference is that student loans, or a house are a <b>risk free</b> investments. Where a <b>positive</b> return is usually assured. However, it is possible to have too much of a good thing. Typically mortgage underwriters use 28% of your income as a rule of thumb for the amount of real estate debt someone can handle, they do this for a reason. To figure out how much of a mortgage you can handle, take 1/3 of your gross income, or approximately half of your after tax income, subtract from that number how much you will have to pay in property tax and insurance. A note of caution, from my high school math teacher, make sure your terms are the same. If you get paid every two weeks, divide your pay check in half, and then subtract 1/26 of your estimated yearly property tax, and be conservative and use half of what your monthly insurance would be. Now grab a calculator, or a spreadsheet, and preform a future value function for that number and whatever interest rate would be reasonable. Now you have how much house you can afford! As for the idea that real estate is an investment. It is an investment, especially when you consider the tax advantages, however there are many other asset classes. Historically, real estate has a 6% yearly return. Compared to the S&P 500 which has a historical rate of return of 11%. It seems to me that a more beneficial strategy would be to invest less then the 1/3 in real estate and put the remainder in a qualified retirement account. One note of caution before I quit preaching. There is something that has been happening so frequently with the baby boomers that it has been coined, the middle class trap. Adam was right, incomes generally due increase, rather then decrease. As family's incomes increase so do their spending. Unfortunately it has been common for family's spending to increase even after they have hit a point where the rate of their income increase has leveled out. And they are forced into refinancing, or using a HELOC to pay off unsecured debt. I like what you added Mike C. When you figure in the added costs of insurance and property taxes, the average person will only see a positive return on their investment after seven years. I feel sorry for the condo flippers in Miami that are hemorrhaging money right now. Adam is right, there are good and bad liabilities. Credit card balances from a strip club are bad debt, while student loans, or a house are generally good debt. The difference is that student loans, or a house are a risk free investments. Where a positive return is usually assured. However, it is possible to have too much of a good thing. Typically mortgage underwriters use 28% of your income as a rule of thumb for the amount of real estate debt someone can handle, they do this for a reason. To figure out how much of a mortgage you can handle, take 1/3 of your gross income, or approximately half of your after tax income, subtract from that number how much you will have to pay in property tax and insurance. A note of caution, from my high school math teacher, make sure your terms are the same. If you get paid every two weeks, divide your pay check in half, and then subtract 1/26 of your estimated yearly property tax, and be conservative and use half of what your monthly insurance would be. Now grab a calculator, or a spreadsheet, and preform a future value function for that number and whatever interest rate would be reasonable. Now you have how much house you can afford!

As for the idea that real estate is an investment. It is an investment, especially when you consider the tax advantages, however there are many other asset classes. Historically, real estate has a 6% yearly return. Compared to the S&P 500 which has a historical rate of return of 11%. It seems to me that a more beneficial strategy would be to invest less then the 1/3 in real estate and put the remainder in a qualified retirement account.

One note of caution before I quit preaching. There is something that has been happening so frequently with the baby boomers that it has been coined, the middle class trap. Adam was right, incomes generally due increase, rather then decrease. As family’s incomes increase so do their spending. Unfortunately it has been common for family’s spending to increase even after they have hit a point where the rate of their income increase has leveled out. And they are forced into refinancing, or using a HELOC to pay off unsecured debt.

]]> By: Mike C http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/comment-page-1/#comment-22744 Mike C Tue, 13 Feb 2007 06:25:44 +0000 http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/#comment-22744 "Your house, on the other hand, will be worth more when you’re ready to move." Sure, this is a fair enough assumption if you are planning to stay in the house for a long time. But if you're a short-time owner in a real estate market with historical dramatic peaks and valleys (SoCal, Boston, San Fran, Miami), it's worth it to track the recent local market price history to get a sense of whether you might face appreciation or depreciation in the short term. “Your house, on the other hand, will be worth more when you’re ready to move.”

Sure, this is a fair enough assumption if you are planning to stay in the house for a long time. But if you’re a short-time owner in a real estate market with historical dramatic peaks and valleys (SoCal, Boston, San Fran, Miami), it’s worth it to track the recent local market price history to get a sense of whether you might face appreciation or depreciation in the short term.

]]> By: rotten bananas » Blog Archive » Fear of Debt Article Featured on Blogging Away Debt http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/comment-page-1/#comment-22665 rotten bananas » Blog Archive » Fear of Debt Article Featured on Blogging Away Debt Tue, 13 Feb 2007 00:19:34 +0000 http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/#comment-22665 [...] and used to seeing related material from her. Check it out! Posted in personal finance by fergs RSS 2.0 Leave YourComment [...] [...] and used to seeing related material from her. Check it out! Posted in personal finance by fergs RSS 2.0 Leave YourComment [...]

]]> By: Quang http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/comment-page-1/#comment-22584 Quang Mon, 12 Feb 2007 21:11:40 +0000 http://www.bloggingawaydebt.com/2007/02/debt-from-another-angle/#comment-22584 Great Tips! For someone who hasn't even thought about buying home, it was a good overview, Thank! Great Tips! For someone who hasn’t even thought about buying home, it was a good overview, Thank!

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