From what I understand, while the federal government sets up overarching financial laws, things like predatory lending tends to be handled more at the state level. I watch a lot of day time television. There's all sorts of commercials for shady stuff on there. Shady lawyers. Shady loans. Shoddy products. For the loans, you'll often see in fine print "This service not available in X States" because those states don't allow such loans to exist. It's kind of a balance thing though, cause on one hand, people want to protect consumers, on the other hand though, people will argue that laws that limit someone's purchasing power is limiting their flexibility. I dunno. Honestly, I think if you can't afford something, you can't afford something. For example, 30 year mortgages are very common. They allow low monthly payments and blah blah blah. I honestly don't know how interest works all that well. What I do know though, is that the price you pay for a house over the course of 30 years is ridiculous compared to a 15 year loan. Check out this shit stupid math, from messing around with a mortgage calculator. 30 Year Loan $200,000 with 20% down equals a loan for $160,000. At 4% interest, you're paying just shy of $1,200 a month. Over the course of 30 years, that's $432,000. Including the $40,000 you put down for the house, you just payed $472,000 for a $200,000 house. Compare to a 15 Year Loan $200,000 with 20% down equals a loan for $160,000. At 4% interest, you're paying just a little over $1,600 a month. Over the course of 15 years, that's $288,000. Including the $40,000 you put down for the house, you just payed $328,000 for a $200,000 house. I mean, yeah, the extra $400 a month might seem like a stretch, but by the time things are said and done, you saved yourself almost $150,000 in that house. In my personal opinion, if you can't afford $1,600 a month for a house, then chances are you can't really afford $1,200 a month for a house and you should be looking for a cheaper house. Then again, I don't own a house and maybe I'm missing something that someone like kleinbl00 or snoodog or goobster could fill me in on.
I used to think the same way. But this is thinking of money in the wrong way. Money is not equivalent to water; money is equivalent to a lever. Part of what you buy, when you buy a house, is the ability to use that house as leverage. Put simply, let's say you have $1,000/mo to spend. You buy a house with a $700/mo mortgage. That gives you $300 of money to invest in other things, right? Wrong. That is thinking of money like water. Now that you own a home, you can use it as security to get another loan. So you buy a condo that has a $500/mo mortgage payment. And you rent the condo out for $600/mo. Now you own TWO properties that cost far more than you can afford, and you are making $100/mo. Most people are something like 2.5 paychecks from living on the street. Because they think of money as water, not as a lever, and therefore can never get comfortably "ahead", unless they find that one high-paying job that lets them telecommute from an area with a low cost of living. In the big picture, buying a house gets you a ticket to the game. It's like a high school diploma: Nobody gives a shit where you went to high school, what grade you got, or what AP classes you took. All the diploma gets you is a ticket to the job market. People who don't invest those 12 years in school will have a much harder time getting a job. People who don't own a house, will have a much harder time getting ahead, financially speaking. The system is just set up that way. (Whether that is the "right" way to set of the system or not... well... that a whole 'nother discussion!) "...I think if you can't afford something, you can't afford something..."
Don't take this the wrong way, but we're gonna have to agree to disagree for the baseline reason of socio-economic status and risk taking. My head's not with me right now, so this is gonna be choppy, but here's what I got. Something like that works for you on your income. Something like that would not and could not work for someone like me on my income. From where I stand, every dollar I'm in debt, that's a dollar plus accumulating interest I have to pay off until I'm free. Every dollar I owe is one less dollar I have to be flexible with, whether it's paying for something else or squirreling away for winter. Let's say for example my mortgage is $500 a month. If one day I get in an accident outside of work and have a medical bill of $12,000 that I have to pay off, that's two years worth of mortgages right there. Now, the hospital might be willing to let me make installments, and that's great, but there's gonna be interest involved, driving that bill up. My expenses have increased unexpectedly and if we stick to the maxim that your mortage shouldn't exceed 25% of your income, that means 50% of my income is now going to the bank and the hospital. It just so happens that this year was the year I was planning for a new car, which now I can't afford, so I'm throwing good money after bad trying to keep a clunker running. Since I can't afford a fancy house, chances are I'm gonna get a clunker house too, so what happens when the plumbing freezes over in the winter and the basement floods? All of these things add up and the more money I owe and the more people I owe it to, the quicker I get burried into debt and the harder it is to get myself dug out. That's the risk of home ownership for someone like me. It's not "Well I'm afraid of the market crashing and my house suddenly being worth $20,000 less than what I paid for" because hopefully my mortgage is a fixed cost and I'm okay with a hit like that. The risk of home ownership is "If something goes bad and I'm buried in debt, I can't cancel my mortgage like some kind of lease and go couch surfing until I save up some cash." I'm locked into that debt, my hands are tied. Somewhere else, kleinbl00 talked about how his health insurance doubled with Obamacare. Something like that alone is enough to make it almost impossible for someone to pay rent or mortgage or car payments. From another angle, there's a lot of risk in "owning" (you don't own shit until everything is paid off and you have the deed in hand) two places and leasing one. The person you're leasing to might be a bad renter. The place you're leasing might be a money pit and that rent doesn't cover it. There are laws that must be followed, legal liabilities that put you at risk, and on and on and on. Staying on top of all of that requires money, knowledge, commitment, and the ability to take on risks. Those people who are 2.5 paychecks away from living on the street? Stereotypically speaking, they're that way cause of debt. They're that way because of low incomes. Realistically speaking, that's a bit of a skewed statistic because from what I understand, people who have an ass-ton of money, tied up in bonds and 401ks and shit, and their liquid savings is small compared to their income. On paper though, they're 2.5 paychecks away from living on the streets. To turn your analogy sideways, debt isn't water or leverage. Debt is a pile of rocks. If you have the right tools and knowledge, you can build a wall out of it. If you don't, it's something that can bury you. Sometimes though, there's a disaster, and one minute you're standing on the wall and the next minute you're underneath it.
goobster is arguing the equation. You're arguing the variables. I read a book about telecom - as in, how to build a phone system from "pile of wire" to "neighborhood filled with telephony." I mention this because one of the maxims put forth in the book is that in telecom, there's only one product but several different billing models. I think this is more profound and more applicable than the author intended: for much of life, there's one thing to buy, many different ways to pay for it. In this case, you're buying "shelter." If you buy shelter in installments with no equity built and no maintenance to pay, you gain the ability to change shelter with short-term notice. If you buy shelter with the intention to sell it later or pass it on to your heirs, you gain the capture of appreciation but give up the ability to change your situation with little notice. Back to inputs and equations: I have no doubt that you have evaluated the situation and have determined that there are no peril-free values you can plug into the equation. You are not alone. That does not mean that goobster's wrong: as the adage goes, it takes money to make money and the current political and socioeconomic climate punishes the working class at the expense of the upper middle and upper classes. But don't let that blind you. In goobster's example, you take your debt in order to increase your income. Put it another way: instead of buying a $500 mortgage for a condo, put $500 a month into an REIT. That REIT goes up in value and if you run into trouble, you stop contributing. Shit, you pull all your equity out and cover your medical debt. Granted, you won't capture as much appreciation in a REIT as you will owning the property yourself but once again, there's one thing for sale and many ways to buy it. The real trap of homeownership is it reduces your mobility. If you get laid off you can't find a job somewhere else easily until you've sold your property (or taken a massive loss by walking away). The eroding job security amongst the working class magnifies this peril. But make no mistake: tax law and social mores in the United States are tilted towards home ownership - multiple ownership even. The economics may not work out for you right now. That's a legitimate beef to take up with your congresscritter. But that doesn't mean the economics don't work.
I think one of the crazy things is, there's a huge risk in the cost of housing whether you rent or buy. Part of the scary thing about renting is, yeah, you're tied to a place either month to month or year to year, and you can scoot out whenever, but rent increases and often dizzyingly fast too. At least with a mortgage, even though you're tied to a 15-30 year contract and hustling to buy yourself out of it sooner if you're smart, your monthly housing cost is much more predictable. The big risk is that so much changes in a year, let alone 30.
No doubt. Risk management is very much a variable in the equation, and I think we can both agree that getting a positive number out of that equation has gotten harder and harder for those without a whole lotta scratch. But once you're on the other side of the inflection point, things get much nicer. Try this on for size: you and goobster were bandying about $500/mo mortgages. Our rent on the birth center is over $2500 a month and we've got a $350k buildout we have to pay off. That's $350k worth of work we did on someone else's property, by the way. We don't own it. We've got a 5-year lease and two 5-year extensions. So we're tying up ridiculous sums of money in this thing... but that gives us an opportunity to run sixteen women a month through the place at somewhere between $2k and $5k each. The hard part is when you don't have sixteen women. Life's a risk. Society, for much-debated reasons, has made it more of a risk for those without a shit-ton of money. But if you can make it over the hump, it gets less risky. That's pretty much what we're both saying.
There is another nuance to consider here. When you own a home, you are much more "interesting" to everyone else. The entire economy is hinged on the idea that you own a home. So it behooves EVERYONE up and down the line to make sure you STAY in that home, and keep making payments. Even if the payments have to be lowered. Or suspended for a while. Or an extra line of credit approved. Renters are a liability. Homeowners are the foundation of the local economy. So once you own a home, there are suddenly a huge number of people involved with making sure you stay in that home, and sustain through the hard times. (Especially after the whole housing market crash, recently! Nobody wants empty houses in their inventory! They want people living there, paying at least SOME money.... and protecting the property from vandalism, and keeping the lawn mowed, and blah blah blah...) I think one of the crazy things is, there's a huge risk in the cost of housing whether you rent or buy.
I beg to differ, but there's a scary NDA between me and the rant about the Great Foreclosure Fuckup of 2008-2011 that I really want to write here. Perhaps _refugee_ has less scary paperwork, if it wasn't before her time.Especially after the whole housing market crash, recently! Nobody wants empty houses in their inventory! They want people living there, paying at least SOME money.... and protecting the property from vandalism, and keeping the lawn mowed, and blah blah blah...
Yeah, the pyramid scheme of sub-prime mortgages failed, because of decreased banking regulation. However, take away the fanciful valuations and silly-money games, and there is still land with a house on it at the end of the trail. And that inventory has an undeniable value, even today. The financial games are a distraction. At the end, every community needs occupied houses, if it is going to survive. So there is motivation from many different angles to keep people in homes, even if exceptions need to be made to keep them there.
Ah, the state vs federal thing. That makes sense. I'll admit the lack of lender flexibility CAN be a massive pain in the arse; my husband and I had a hell of a time getting a thirty year mortgage on one income, despite being able to demonstrate our ability to repay it easily (our income may be low, but our expenses are lower!) Meanwhile, six months in, we're already three years ahead and are set to have it completely paid by 2026; sooner, if my business goes well. We plan to lean in and get it sorted ASAP. The reason why 30 year loans make sense is that the interest paid on a mortgage is so low (ours is currently 4%) that you can make money than you would save by investing in damn near anything. It's the cheapest credit you will ever get. Capital gains are also very solid in Australia; our tiny, crappy, little house is increasing in value more quickly than the interest is amassing on it. So it makes a lot of sense to pay it off slowly and put that money to work elsewhere. We've instead chosen to establish a safe base first. Once we have this place paid off we may choose to take more risks, but we want to be sure that we will always have a place to live, even if we decide to rent it out in the future.
Yeah. I don't know what the housing market is like in Australia, but I've learned my lesson from my peers. I've had so many co-workers lose their houses or lost a ton of money on their houses in the last crash. Seeing things get so messed up here, they no longer seem like sound investments and now they seem like risky investments with the bonus of being shackled to whatever city you live in with a 15-30 year contract that you're gonna owe money on whether you want to or not. So the wife and I, in our house hunting, are barely thinking "investment" and really thinking of "our own place to live, that's cheaper than rent, and worth all the risks that come with home ownership." Plus "investors" around here snatch up all of the good houses faster than you can blink and normal folks like me are left to sift through scraps with a sour taste in our mouths.
Oh no. I understand exactly where you are, and it's a rotten place to be. I hope there's light at the end of the tunnel for you. We had the same trouble; living as lean as we could (and I mean REALLY lean) and paying our rent, we could JUST manage to save about two grand a month, because my poor husband was grabbing every bit of overtime he could. Unfortunately, prices were (and are) rising faster than that; like you we're in prime investment country. After two years of chasing our tails that way, we were feeling pretty miserable. But we did finally find a place! It's very, VERY small; more of a free standing apartment than a house and it's in serious need of TLC. But it's within cycling distance of my husband's work (12km; he's braver than me) it's close to schools, shops, parks and bush as well as the university. And, importantly, it has a lovely little studio made from a shipping crate that was once a hairdresser and is going to be my clinic. We got this place simply because the sellers were divorcing and needed the money immediately. Most people prefer to delay settlement, we wanted to close immediately. So they went with us, even though it lowered the price. Deceased estates are also often eager to settle as quickly as possible, so if you go full vulture for a while, you may find something. Good luck. I truly hope something turns out. We love having our own home, even if we could rent something nicer for the same amount.