Real Estate Crash thread

[AdironRider]

All good points AR. I am here to tell you, get the property paid off. Thank Dog my primary paid off around 2008 when my income was reduced to 25% of what I made before that and then the rentals paid off a few years ago or I would of been fucked.
Employment shit can happen in your 50's, so get your nut low in those years so you can either save a bunch if your job is solid or survive if you get let go like so many people I know.

"The key to happiness is low overhead" - some lady I can't remember but it is straight truth.

[Name Redacted]

All good points AR. I am here to tell you, get the property paid off. Thank Dog my primary paid off around 2008 when my income was reduced to 25% of what I made before that and then the rentals paid off a few years ago or I would of been fucked.
Employment shit can happen in your 50's, so get your nut low in those years so you can either save a bunch if your job is solid or survive if you get let go like so many people I know.

That's another way of looking at it, and I totally respect that need for peace of mind. Everyone's financial picture is different, and risk tolerance is 100% involved in every scenario. Job security, kids, health, etc are all factors that change your decision making and will result in different approaches.

[Benny Profane]

Yeah, I don't see it imploding in spectacular fashion again. Back then, literally everything was going gangbusters, even little podunk NH towns and people with liar loans for examples.

This go round, it seems more location specific (popular cities, mountain town real estate, etc) and buyers that actually pass some sort of underwriting review.

That isn't to say there won't be a correction, but it will be more like 5-10% at most. I also think interest rates will continue their downward spiral, and within a decade we will see loans with rates under 1% with points. No way in hell we ever see a mortgage rate over 5 in our lifetimes again.

PS. Are you guys really cash out refinancing again this year? At some point renewing 30 year terms is going to bite you and you gotta pay the thing off eventually right? I'm starting to think its better to just throw a little extra scratch at the principal each month and effectively lower my total interest paid that way.

Interest rates can't go any lower. We ain't going to negative rates, with Powell and now Yellen in charge. The Euros tried that, didn't work. The danger is rates going up at this point, if you hold bonds, and, well, think your already inflated home value will still appreciate.

Beware of "no way in hell" predictions. I'll never forget a finance guy telling me in '81 that we'll never see single digit rates again.

[liv2ski]

Exactly, I have always planned for the worse case scenario and have usually received something better. The plan was to buy a place up in Mammoth once the primary was paid off, but based on what happened to my income stream that plan went in the toilet. Don't over extend yourself should be everyone's mantra, especially as you age.

[Danno]

PS. Are you guys really cash out refinancing again this year? At some point renewing 30 year terms is going to bite you and you gotta pay the thing off eventually right? I'm starting to think its better to just throw a little extra scratch at the principal each month and effectively lower my total interest paid that way.

No, not cash out refinancing. I'm just rolling the prepaids into the new loan, so it's the equivalent of a small cash out, something like $3k-6k, depending on the balance of the escrow account and whether I get to skip 2 payments or just 1. Nobody would call it a cash out refi, but that is essentially the effect.

I get your point and it is one I have thought about a lot over the years. I have been in this house for 15 years and yet still have 30 years to go on my mortgage! And because one of my many refis was an actual "cash out" one, my principal balance is maybe $40k higher than when I started! OTOH, my property is worth well more than twice what it was, so...

But to your point, money is very tight right now so if doing the last 2 refis (one in July and one upcoming) nets me a few thousand in extra cash flow and $200/mo less in required payment, I have to take it. Plus, I do not intend to retire in this house, I fully expect that I will sell and move somewhere; downsize if I stay in this community (unlikely) or move somewhere cheaper and leverage my existing equity into an outright purchase.

[Name Redacted]

Because most humans do not have the discipline to reinvest an equal amount of money in the S&P500 (or other vehicles). Median retirement balance, let alone investments, is a whopping 60ish thousand dollars nationwide, and that doesn't include 1/2 the country that has no savings at all.

Paying off the mortgage is a guaranteed return, which has a value in and of itself. I am discounting this "paying off high interest debt" argument here because I'm referencing taking out another refi after 6 months. If you have jacked your credit balances that much that fast you have bigger problems and just proves my point that the vast majority don't have the savings discipline mentioned above.

And finally, I do personally believe that a paid off house or condo is the only way to have a successful retirement (combination of cash flow benefits and lack of anxiety/stress). Continuing to refi starts that clock over and over again.

Wait, when did "Most Humans" and "Discipline" come into the conversation? I thought we were talking about reasonably intelligent investment strategies and debt management. Sorry, you do you.

It is pretty simple math. You want to pay off the house in retirement? Go for it, when you retire, take some money out of that nice big VTSAX account that you've been paying into during your working years that gave you a 8% compounding return and pay off the house so you can sleep at night.

[Benny Profane]

Not if that money is taxable.

[AdironRider]

Interest rates can't go any lower. We ain't going to negative rates, with Powell and now Yellen in charge. The Euros tried that, didn't work. The danger is rates going up at this point, if you hold bonds, and, well, think your already inflated home value will still appreciate.

Beware of "no way in hell" predictions. I'll never forget a finance guy telling me in '81 that we'll never see single digit rates again.

You originally said in this very thread we are heading the way of Japan. Average rate there is .72%.

https://resources.realestate.co.jp/b...loan-in-japan/

Sure I'm setting myself up with the "not in our lifetimes" argument, but interest rates going up is a very different thing and will have drastically different effects on the overall economy (as in negative) vs. them going down another point.

[AdironRider]

Wait, when did "Most Humans" and "Discipline" come into the conversation? I thought we were talking about reasonably intelligent investment strategies and debt management. Sorry, you do you.

It is pretty simple math. You want to pay off the house in retirement? Go for it, when you retire, take some money out of that nice big VTSAX account that you've been paying into during your working years that gave you a 8% compounding return and pay off the house so you can sleep at night.

Sure the math works out on paper. I would personally argue reasonably intelligent investment strategies need to take into account basic human nature though

Literally no one but the .1% actually pulls off the "invest the difference" strategy. No. One. And even .1% struggles with this. It is a story as old as time (see the Vanderbilts)

And Benny makes a good point with the taxes.

[AdironRider]

No, not cash out refinancing. I'm just rolling the prepaids into the new loan, so it's the equivalent of a small cash out, something like $3k-6k, depending on the balance of the escrow account and whether I get to skip 2 payments or just 1. Nobody would call it a cash out refi, but that is essentially the effect.

I get your point and it is one I have thought about a lot over the years. I have been in this house for 15 years and yet still have 30 years to go on my mortgage! And because one of my many refis was an actual "cash out" one, my principal balance is maybe $40k higher than when I started! OTOH, my property is worth well more than twice what it was, so...

But to your point, money is very tight right now so if doing the last 2 refis (one in July and one upcoming) nets me a few thousand in extra cash flow and $200/mo less in required payment, I have to take it. Plus, I do not intend to retire in this house, I fully expect that I will sell and move somewhere; downsize if I stay in this community (unlikely) or move somewhere cheaper and leverage my existing equity into an outright purchase.

I think the concept of selling out a place in Boulder (or the equivalent) to retire to cheaper areas is a fair point, the exception to the rule so to speak. Lots of folks won't be able to pull that off but if you can make the nut for a mortgage in a desirable area for a couple decades then cash out that certainly works. The hardest part there is just getting in the game in the first place.

[ntblanks]

"The key to happiness is low overhead" - some lady I can't remember but it is straight truth.

this, plus low burn rate.

smart lady.

[Name Redacted]

Yeah, the taxes are a real concern, which is why you would continue to pay the mortgage payments as normal because they are at a very low interest rate.

ETA: unless that money was in your ROTH

[Toadman]

Which is why the whole "affordable housing" idea is such a joke. When I say, "remind me again why we want affordable housing and who is supposed to pay for it", I get a lot of defensive responses and head scratching. So 99% of what local government does increases the cost of housing then on the side they have this little feel good side hustle that does nothing.

Local small town/city council are owned by developers. They like the property taxes and building permit fees to pay for their little pet projects. You know, like a dog park, and a 4 block bike lane to nowhere, or renovating the run down local play house that no one goes to anymore.

[XXX-er]

Mom was I think 84 when I chose the longest amortization with the lowest payments possbile ... no rush eh

[RootSkier]

"The key to happiness is low overhead" - some lady I can't remember but it is straight truth.

Printing this and putting it on my bathroom mirror.

[Name Redacted]

Sure the math works out on paper. I would personally argue reasonably intelligent investment strategies need to take into account basic human nature though

Literally no one but the .1% actually pulls off the "invest the difference" strategy. No. One. And even .1% struggles with this. It is a story as old as time (see the Vanderbilts)

And Benny makes a good point with the taxes.

I'm not describing some fancy investing strategy that's just for the 1%, it is a pretty basic debt management strategy that is used by a lot of people. Many of whom are not rich.

But I guess this is just like talking to a friend of mine the other day. He said "I put an extra $500 towards principle every month so we can pay off the house earlier" Me: "Sweet, what's your interest rate?" Him: Shrug. Me: "Why don't you invest that money?" Him: "Don't know how" Me: "Cool, how do you like that schwarzbier?" And that was it.

[Dantheman]

"The key to happiness is low overhead" - some lady I can't remember but it is straight truth.

That's half of it. The other half is "low expectations." True as hell for sure. The opposite approach is doomed to failure because expenses usually rise to meet income.

[XXX-er]

IME only ^^ if you are married

[MiddleOfNight]

I'm not describing some fancy investing strategy that's just for the 1%, it is a pretty basic debt management strategy that is used by a lot of people. Many of whom are not rich.

But I guess this is just like talking to a friend of mine the other day. He said "I put an extra $500 towards principle every month so we can pay off the house earlier" Me: "Sweet, what's your interest rate?" Him: Shrug. Me: "Why don't you invest that money?" Him: "Don't know how" Me: "Cool, how do you like that schwarzbier?" And that was it.

It makes intuitive sense .. but ..

.. For sake of numbers say he does this for 10y, 60k off principle (3 1/8, 30y fixed). Say I invest the same, and earn 6-8% - cash it out and pay it to my mortgage.
The gains taxed along with my annual income at what, 20% like any respectable dentist (?), what makes the most sense? This assumes no inflation, no stock market crash, and decent investing - the average bozo (me) can't assume anything.

I'm not arguing, I know at some point the math works, I'm just not smart enough to figure out where that is.

[RoooR]

Wait, when did "Most Humans" and "Discipline" come into the conversation? I thought we were talking about reasonably intelligent investment strategies and debt management. Sorry, you do you.

It is pretty simple math. You want to pay off the house in retirement? Go for it, when you retire, take some money out of that nice big VTSAX account that you've been paying into during your working years that gave you a 8% compounding return and pay off the house so you can sleep at night.

8%?!! Haven't you heard of TSLA and PLTR?

[liv2ski]

These "Put the money in the Market" pieces of advice are what lead to my grandfather losing his ass, farm, savings and whatever else he had in the 70's. Think it can't happen to you? You haven't been in the market long enough. Take the guaranteed return of paying the house off in 15 years (or less) is what I recommend. Buy rentals with your savings and pay the loans off faster as the rents increase. Not a fan of the stock market.

[Name Redacted]

These "Put the money in the Market" pieces of advice are what lead to my grandfather losing his ass, farm, savings and whatever else he had in the 70's. Think it can't happen to you? You haven't been in the market long enough. Take the guaranteed return of paying the house off in 15 years (or less) is what I recommend. Buy rentals with your savings and pay the loans off faster as the rents increase. Not a fan of the stock market.

Once again, there's a multitude of different risk levels in investing, and financial advisors actually calculate your personal risk level and invest your money accordingly. I'm not talking about going all in on TSLA, or buying the next Amazon here. I'm talking low cost index funds. Pretty vanilla shit. Even a very risk adverse person can invest and get a better return over time than what you are getting on your mortgage.

Investing in the stock market is a lot different now than it was when your grandfather lost his shirt.

Lastly, paying off your house is not a guaranteed return. Your house can lose value.

[liv2ski]

Investing in the stock market is a lot different now than it was when your grandfather lost his shirt.

Lastly, paying off your house is not a guaranteed return. Your house can lose value.

Yup, it is always different this time until it isn't. In my 60 years on this planet and 50 in CA, real estate has done nothing but go up decade over decade with a few dips here and there. Our home was purchased for about $200k in 1985 and is worth about $2M now. Similar story with the rentals. The below is for all of CA. San Diego has doubled the below results as has any area within 50 miles of the beach.
If you like the stock market, have at it. Real estate has been very very good to me.

[MiddleOfNight]

Lastly, paying off your house is not a guaranteed return. Your house can lose value.

Sure the house can lose value. Local RE and the market seem to correlate to some degree, but I'm not sure what's safer.
Even if it were to be worth less than when I bought it, not paying the a monthly note will be pretty rad. That changes my quality-of-life picture pretty drastically. The soonest and safest I can get there is the goal.

I fully appreciate I need to go see a pro advisor.

[Conundrum]

There is something to be said for having your shit paid for and not owing anybody anything. That said, I was just offered more ownership in the company I work for and the money we had saved up went there instead of paying off the house. Hope that works out for us. I'm more in the no debt camp so it added some stress to my life and I don't like it.