That is true, but I'm looking at getting out right now--a somewhat dicier proposition now that the retirement I saved for is tanking. I'm not claiming to be headed for the poor house by any stretch, just sharing another perspective on our declining economy's fallout.
Military officer--since my pay is set by congress and doesn't fluctuate, my income is unchanged. The place we're really getting hit is in housing; having to move every 3-4 years means buying and selling houses as often. At this point I'd be thrilled if I could get out from my house losing only $40k. Regardless, I have to move this summer. Couple that with watching my retirement investments lose about 45% of their value, and my losses have been pretty significant. But I do have a steady pay check, and I'm grateful for that.
The obvious down side is that, while I'm not all that worried about losing my job, I have to spend more time away from home in unpleasant places than I actually spend at home. (keeps the milage on the beast low, though)
But why would you buy instead of rent. The frictional costs, bid/ask spreads,commissions,opportunity cost. Makes it a poor idea.
Renting would be better financially. 3-4 years is too short of a period to buy/sell/buy
But why would you buy instead of rent. The frictional costs, bid/ask spreads,commissions,opportunity cost. Makes it a poor idea.
Renting would be better financially. 3-4 years is too short of a period to buy/sell/buy
I'm giving that serious consideration. Another option is buying, paying down the mortgage, then refinancing so that I can rent the house out with a slightly positive cash flow. Build my own little real-estate empire after a few moves.
Originally Posted by shorts But why would you buy instead of rent. The frictional costs, bid/ask spreads,commissions,opportunity cost. Makes it a poor idea.
Renting would be better financially. 3-4 years is too short of a period to buy/sell/buy.
Quote:
Originally Posted by AV8R
I'm giving that serious consideration. Another option is buying, paying down the mortgage, then refinancing so that I can rent the house out with a slightly positive cash flow. Build my own little real-estate empire after a few moves.
Shorts makes good points on buying vs renting. Although in certain parts of the U.S. its cheaper to buy for 3-4 years, usually small Heartland communities, generally renting is cheaper as the first third of mortgage payments usually consist of interest, not principal. No equity buildup in the investment, the interest deduction only equals your tax bracket. Not until the last third of the mortgage are most payments predominantly principal. Each time you refinance, you start from the beginning with mortgage payments consisting predominantly interest. Ask for a mortgage amortization table before signing and determine the break even point.
Housing values along both coasts are the most inflated over their underlying intrinsic value. If you buy at inflated prices, you can end up upside down, as many have learned the hard way.
As Cosmo mentioned, you get a guaranteed pension come retirement.
There is a difference between investment paper losses/gains and real losses/gains. What percentage of the 45% decline in value of your retirement investments are paper losses vs real loses, and over how long a period of time?
A portfolio of blue chip, DJ 30 and upper S&P 500 member companies will recover more value than a pink slip portfolio over the next 10-20 years.
Over the next ~4 years, inflation is going to spike up. Among legal investments, only common stocks and some real estate stay even or outpace inflation's corrosive effects.
IMO the U.S. has started it's inevitable long term decline. Retiring Boomers are trading their saving for goods and products from younger and hungrier countries. You might start looking at emerging markets and the Pacific Rim (ex-China) EFTs. Benefit from China's growth by buying stock in countries that benefit from China's growth.
Diversify among business sectors, geographical areas and investment types. Bank CDs and carefully researched G.O. (general obligation) pre-refunded Munis are good equity offsets. Puerto Rico Munis are usually state tax exempt. Don't trust the rating companies, do your own research on the issuer's financial health, or use someone knowledgable you trust.
Refinancing to set up a net positive cash flow (vice a slightly negative one) does kill the amortization part of the picture, at least initially, but having renters cover the overall costs of the mortgage makes the option more attractive. With the real estate generating income, it's a lot easier to wait out the drops in the market. Appreciation over the long term should pace inflation, making rental property somewhat (let me emphasize somewhat) similar to Muni bonds in terms of growth and tax advantages. (assuming you take advantage of tax shelter provisions)
That being said, I do appreciate the advice on ETFs & Munis--I'll look into them when I re-balance my portfolio.
as long as you have a tenant in good standing......right now in NY Tri-State area it is a renters market as there are many units available and rental numbers have been going down....even in the most desirable areas(outside Manhattan)...though I agree with you in that I have always believed RE to be a very sound foundation to build wealth...while it is not liquid.... I still like it...alot!..
Best of Luck to You!
S
Refinancing to set up a net positive cash flow (vice a slightly negative one) does kill the amortization part of the picture, at least initially, but having renters cover the overall costs of the mortgage makes the option more attractive. With the real estate generating income, it's a lot easier to wait out the drops in the market. Appreciation over the long term should pace inflation, making rental property somewhat (let me emphasize somewhat) similar to Muni bonds in terms of growth and tax advantages. (assuming you take advantage of tax shelter provisions)
That being said, I do appreciate the advice on ETFs & Munis--I'll look into them when I re-balance my portfolio.
Glad I can help, we're all in this together.
Have you been a residential landlord before? If not, talk with others who have, more involved than "renters cover(ing) the overall costs of the mortgage".
You'll need someone to cover for you when you're out of the area. Good luck with the 3 a.m. calls.
Concerning fixed income, compare tax-exempt vs taxable bond yields, especially if you remain in an area w/o a state income tax. Go for pre-refunded (insured in advance with Treasuries purchased by the insurers) and check for call dates and any possible AMT exposure. Do your homework before buying bonds, pick cherries not lemons. Stay away from bond funds, unless govt. only with =<1 year maturity.
The Barclay's site has a nice set of financial tools on the professional side, if you're good with numbers, check them out.
It's only a matter of time.
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