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Buying a first home
shmokes:
--- Quote from: DrewKaree on March 21, 2007, 03:37:03 pm ---
. . . in case you didn't know, jbox lives in Oz and they may not have the same setup . . .
. . .Just because his laws might not be the same and their tax structure might not equate doesn't mean . . .
--- End quote ---
Mommy, the strange man is arguing with himself again.
jbox:
*sigh* I started my post with "I don't understand why people find this so hard", and I still don't. Let's try this one more time, very slowly for the kids from the special bus who never mastered ratios at school:
(a) people who rent shouldn't even be paying off the interest on their landlord's loan because in if they make a loss usually they can do something called "negative gearing" (getting a double tax deduction) on the *loss* of the loan AND because after twenty years they also now have a big shiny property they own
(b) if you *are* paying off your landlord's interest (or worse) then you are paying too much and should move, but I'm sure there's a myriad of excuses people will make about how that's not possible
(c) comparing a city apartment to a suburban house (for example) makes no sense because as we have seen from the prices people have thrown around in this thread - location, location, location!
(d) if you are serious about buying a home then I am going to assume you have already got some idea what your maximum repayment budget really is (and that you also know what kind of rent properties of that type *in* that area are charging).
So, let's say that you have a choice between renting and buying. If you buy your repayment looks like this:
mortgage repayment = interest (bad) + principal (good)
Alternatively, if you're renting then your budget should look like this:
same income = rent (bad) + savings (good)
Both interest and rent are bad because the money is gone for good (although I'd still rather give that money to another person than another bank). The biggest problem people seem to have is understanding that when you rent the excess money doesn't magically turn into iPods all by itself! :o If you are one of those people who are simply incapable of sticking to a damn budget, and thus saving the difference, then go buy a house already. Otherwise:
interest (bad) + principal (good) == rent (bad) + savings (good)
which leads us to:
buy ratio == principal / savings == rent / interest
which is a ratio (just like trade ratio = exports / imports) that tells you whether you're likely to be better off buying a house (> 1) or whether or not you're better off renting (< 1). If you get a number anywhere over (say) 0.9 then it's time to make an appointment with the bank.
And yes, there's eleventy brazillion things you have to take into account if you want to work the figures out accurate to ten decimal places, but my experience is that people who are so vague about home ownership are either (a) hippies, or (b) people with little (or no) savings. If they listen to all the other Talking Points(tm) of people whose income is derived from getting people to buy and sell property they can easily forget that at the end of the day the question is whether or not your money is actually being saved (in either a house or in shares), or whether your money is being lost (to either a bank or a landlord). All those other details may fine-tune the numbers, but they don't change the fact that interest and rent are BOTH dead money, while there is no good reason why people can't save money while they are still renting. :dizzy:
The funniest thing is that this is not the first (or last) time I've tried to point this out to people, and it always cracks me up how the "wanna-be Enron's" always try to come back with numbers they 'feel' prove me wrong when in actual fact the more they exaggerate their figures the more it proves the ratio nails the important details (edit: which I notice a couple of the brighter sparks have already picked up on). :dunno
AtomSmasher:
Yes, both rent and interest are dead money, the one significant difference is interest is a tax write-off while rent is not. That makes a large difference.
I guess in Australia rent is a lot lower then the average mortgage payment, that simply isn't true in America (or at least not in the Los Angeles area). That would explain why you seem to think buying a house is such a bad idea.
As I have pointed out numerous times, buying my house actually saves me money annually, plus I will make even more equity when the housing values increase. Hell, if I wanted to I could of immediately flipped the house and made a nice $20,000-25,000 profit.
You seem to think that I could of just rented in a cheaper area, well yes, I could of, but then I also would of lived in a much dumpier area where gangs are starting to take over. Personally I prefer to live in the nicer areas, especially since I can afford to.
Honestly, I can't believe how much better you think you are then most people. Its quite sickening.
shmokes:
Jbox, you sound ridiculous. You didn't always know all this stuff. You act like it's just common sense that everything you pay in the beginning is interest when, of course, you only know that because you specifically learned it, not because you simply intuited it out of thin air. You had to learn all these things at one time, meaning before you learned it, you didn't know any of it. Do you think the entire world is supposed to suddenly know all about something the moment Jbox does?
With that out of the air, I still have questions about your formula. You say that interest is equal to rent, because they are both dead money, but that doesn't quite make sense to me because one is never-ending, while the other is somewhat fixed. One day in the not so distant future, don't you pay off all the interest, at which point you're practically paying your mortgage payment to yourself in equity? The formula also appears to ignore changes in market value. I'm under the impression that the real estate market tends to perpetually rise in the long-term, with spikes and valleys in the short term, but when the value of your house increases solely because of supply/demand isn't that large amounts of free money that a renter would never see?
If you're going to be an ---uvula--- about how smart you are, at least be as smart as you are claiming to be. Or I'm just wrong about all this stuff, cos like I say, I don't know anything about it, but either way you sound like an ---uvula---.
boykster:
--- Quote from: shardian on March 21, 2007, 12:43:00 pm ---I don't see how you can save $6000 in actual taxes just from the house. That is just crazy.
--- End quote ---
I paid nearly $30k last year in mortgage interest and property taxes. It at my nominal tax rate of 28% that saved me plenty ;D
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