Quote: (01-25-2014 12:07 PM)WestCoast Wrote:
Cardguy you just don't get it. Please read a book on investing.
If your debt rate is high (I don't know what your credit score is) you may be foolishly paying mortgage. You probably didn't understand my 4 & 7 comment.
Let's day your rate is 4%. So you wrote off the interest but for simple purposes you are paying 3% on interest early on in the mortgage process. (Yes I know lower higher blah blah this is just a point).
3% LOSS now you got inflation @ 3%. 6% DOWN.
Now you gotta assume the house appreciated by lets say 7%... Let's go ahead and add the equity from your first year on a 30 year fixed I'll be nice and say 4%...
That's a 7-6+4 = 5% return. On an asset you can't offload quickly.
If you don't get this you're going to be in trouble long run. You only get one shot at becoming wealthy in life man. Don't fuck it up.
If the rate is good, price appreciation is good that's fine. But right now you are a blind squirrel.
Run the math correctly, the mortgage interest deduction is generally overstated by the public as some "huge savings" when in reality you have to look at your rate compare everything on a net basis and don't make foolish decisions.
Say his apartment is $100k. He puts 20k down and got 4% on a 30 year loan as you say.
House appreciates 7% in one year - in one year it's worth 107k.
Property tax is 1.25% - so he pays $1250.
His mortgage is $380/month - x12 = 4560.
Say 2/3 of that is interest = $3000 in interest deducted from his taxes, say 25% rate he gets $750 back from that.
So his earnings on the first year are:
7000 appreciation
-1250 property tax
-4560 mortgage
+ 750 interest deduction (this is significant in the first years, less so later on)
~= 1940
on a 20k initial investment, which is a little less than 10% in the first year before factoring in inflation. That's the absolutely idealized case on new construction, over the long-term maintenance costs etc. start to add up, and of course your interest deduction will be significantly less as you start to make headway on paying off the principal.
I believe in the US inflation is closer to 1.5% right now, but in a comparison case study with SPY I don't see the point in factoring it in.
SPY has a long-term average return of ~10% and as multiple posters in this thread point out, there is no maintenance required, and any idiot has access to these returns using simple dollar-cost averaging over a very long window. It's important to realize that the vast majority of those returns occur in relatively short windows - SPY might move 35% one year, and stay flat or net negative the next 3. DCA over long time periods protects against this and any monkey can follow it. Owning a house, especially a rental property, is a huge headache and the long-term returns are *not better*. The main advantages are having a place to hang your hat, pride of ownership, and the good feeling of never writing a check to your landlord - AKA entirely emotional.