tag:blogger.com,1999:blog-5465015914589377788.post5825577530724871520..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Owning a Home vs. RentingMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-5465015914589377788.post-71737233154100474092020-10-31T23:25:01.197-04:002020-10-31T23:25:01.197-04:00The comment above is (in part) a reply to Thicken ...The comment above is (in part) a reply to Thicken My Wallet's comment:<br /><br />My question with the people walking away from homes is where exactly are they going to go? What right thinking landlord would rent to a potential tenant who walks away from its responsibilities?<br /><br />Regardless, this is much harder to do in Canada than in the U.S. since the mortgagor is still responsible for the difference between monies owing and the sale proceeds on the home (at least in Ontario).Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32484313761711059292020-10-31T23:23:44.757-04:002020-10-31T23:23:44.757-04:00The comment above is a reply to Larry MacDonald...The comment above is a reply to Larry MacDonald's comment:<br /><br />I wonder if the rent vs. buy decision could also take into account valuation levels attached to houses, as measured by ratios such as house prices to rent, income, etc. Renting makes more sense when rents are low relative to house prices and vice versa, less sense when rents are quite high relative to prices.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-12302654850124730372010-08-17T08:18:32.209-04:002010-08-17T08:18:32.209-04:00When asked why I rent, I sometimes just say I don&...When asked why I rent, I sometimes just say I don't want to be a property manager, and I don't want to be a real estate speculator.Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-20126210241624805512010-08-10T18:28:18.908-04:002010-08-10T18:28:18.908-04:00@MJ, Thicken My Wallet:
Yes, as Thicken mentions,...@MJ, Thicken My Wallet:<br /><br />Yes, as Thicken mentions, and as my brother told me, in the US, collateral for a mortgage consists only of the house. In Canada, I think we are still liable for our debts even if we lose our home.<br /><br />As far as renting to someone who has abandoned their home, maybe a landlord could require a more stringent rental agreement. Either that, or the renter would have to find someone willing to rent without a credit check.<br /><br />Voluntarily having your home repossessed allows you more flexibility to move to a different state in search of better employment.<br /><br />Politicians and bankers might appeal to an owner's moral code to make good on their debts, but in reality, financial institutions stop paying underwater mortgages all the time. They make a business decision to break the contract, and some argue homeowners should be allowed the same privilege.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-76936241009381941892010-08-10T07:54:53.949-04:002010-08-10T07:54:53.949-04:00@Gene: It's true that the bank takes some rea...@Gene: It's true that the bank takes some real estate risk when it writes a mortgage, but not much compared to the homeowner. I know that some Americans have stopped making mortgage payments because they have negative equity, but is this happening in Canada too?Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-39916854478886276722010-08-10T01:00:04.027-04:002010-08-10T01:00:04.027-04:00I suppose it is true the bank is not your partner ...I suppose it is true the bank is not your partner on real estate risk, though it could happen in a collapsing market. For instance, my brother is buying a short sale in Nevada. The seller needs to get his lender to agree to absorb the capital loss on the house. My brother's successful offer was 50% of the current owner's (maybe they should just be called the current occupant) purchase price five years ago.<br /><br />Of course, this isn't a standard case, and our regulations in Canada are different.<br /><br />I suppose the reason that houses have traditionally been a decent investment are what you've alluded to here: leverage and a steady rise in prices. This hides the real risk that a leveraged drop in prices tends to destroy equity rapidly, leading to the dire default risk that presently faces the American economy . The real mystery is why don't people with negative equity in their homes simply abandon them? I do think, however, that legions of owners (again, occupants) are halting their mortgage payments, since they don't fear forclosure. They may lose their homes, but they have no equity, no skin in the game. Also, since there is a glut of real estate on the market, banks are currently not keen to foreclose, so lucky borrowers may live mortgage-payment free in a home they don't really "own" (no equity)for quite a long time.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-67254668809243313732010-08-09T23:22:20.635-04:002010-08-09T23:22:20.635-04:00@Larry: I fear that people may go in the opposite...@Larry: I fear that people may go in the opposite direction. When house prices are high, people are likely to imagine them continuing higher and be tempted to buy.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-29388893840534531222010-08-09T15:18:32.446-04:002010-08-09T15:18:32.446-04:00@Robert: Actually, the percentage of you net wort...@Robert: Actually, the percentage of you net worth represented by the house does not change if you take out a mortgage. The bank is not your real estate investment partner. If the house goes up or down in value, you get all of the gain or loss. You may feel as though you only own a fraction of the house's value, but you are fully exposed to the volatility of the full value of the house. <br /><br />The leverage has made it so that your total invested is more than 100% of your net worth. It may seem that your real estate exposure is less when you have a mortgage, but it is not. You have just added exposure to other asset classes as well. Your total risk is now higher than if you just owned the house.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-82420943665559212882010-08-09T14:45:24.164-04:002010-08-09T14:45:24.164-04:00Mortgaging the house is another compromise solutio...Mortgaging the house is another compromise solution. That way, the portion of your net worth tied up is less than the value of the house. This would be the case if every month, you make your mortgage payment, but invest a similar amount in the market, increasing investment debt. Your total debt stays the same, but your net worth shifts to be more balanced between the house and liquid investments.Roberthttps://www.blogger.com/profile/12961149077824073687noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-15311983920152517402010-08-09T11:12:12.453-04:002010-08-09T11:12:12.453-04:00@Greg: If I can summarize your argument, it would...@Greg: If I can summarize your argument, it would be 1) you expect the value of your house to rise nicely, and 2) you like leverage because interest rates are low. There have been periods where houses have dropped in value. Leverage can be dangerous if your investments drop in value. For example, if interest rates rise, your bonds will drop in value. Things may work out well for you, but this is not guaranteed. As an aside, I'm always suspicious that whole life insurance policies have large embeeded costs.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-88885016259280382292010-08-09T10:11:45.227-04:002010-08-09T10:11:45.227-04:00I don't think renting vs buying is a good idea...I don't think renting vs buying is a good idea at all. A mortgage is not a bad thing to have and in my experience has been one of my best investments. The house I own has gone up considerably since I bought it. My current mortgage rate is 3.xx so pulling out money from there and placing it in an investment (even a bond fund) makes sense. <br /><br />I will likely keep a mortgage right up to retirement then pay it off with the investment portion of my whole life insurance policy (which pays at least 5%). In times where rates go up I cut back on investing and put more on the mortgage principal as an investment with better return. I do the opposite when rates are low.<br /><br />All the while I own my properly and control my investment future. A home is a good investment, a mortgage is a great one. <br /><br />GregAnonymousnoreply@blogger.com