A mortgage (if you do it sensibly) is long term, fixed rate, tax advantaged, and non-callable. Give me those terms and I absolutely would borrow to buy an S&P 500 index fund.
Then you should be doing a cash out refinance and investing the proceeds.
1 Like
SeattlePioneer
Now there’s a name from the past.
Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.
I’m surprised intercst would even rent an apartment. If the bottom line is the most important factor, he should be pitching a tent or using a nice cardboard box under the nearby overpass.
PSU
15 Likes
If you’re the average homeowner with few assets, and the bank forecloses on you, they just take the house because they realize they won’t get blood from a stone. But if you have other assets they can come after to make good on the loan like with golfwaymore, the bank will surely pursue you.
If golfwaymore had the assets. why didn’t he use those assets to make the mortgage payments? Methinks there is more to this story.
If I wouldn’t borrow money to buy an S&P500 index fund, why would I mortgage my home to do the same?
Cheap, long-term, non-callable loan.
Buy the house with a fixed rate 2.5% loan with 20% down, invest the other 80% and earn average inflation + 8.5%.
Historical 80/20 returns for 30 year periods: Median 10.3%, Min 8.6%.
Subtract off the 2.5% cost, and it’s: median 7,8%, minimum 6.1%.
Average inflation is 2.0%
Note that the mortgage payment is not affected by inflation.
If your payment starts out at $1500, and inflation averages 2%, the payment at the 30th year is equivalent to $828. Almost half the initial payment.
Meanwhile, every $1,000 you invested (at the net 6.1% MINIMUM) has grown to $5,900.
Your only financial risk is if you don’t make the required monthly payment.
– cont. –
2 Likes
– cont. –
There is an interesting twist if you have enough retirement assets that you don’t really need SS to live on, and the SS check covers (or just about covers) the mortgage payment.
Couple your SS benefit with your mortgage payment—have the SS go into a dedicated bank account and the mortgage payment on autopay from that account.
As inflation occurs, the SS check goes up but the mortgage payment stays the same.
In the last 15 years (2007 thru 2021) using the SSA COLA, $1,500 initial benefit has grown from $1,500 to $2,024.
In the last 30 years (1992 thru 2021), $1,500 initial benefit has grown from $1,500 to $2988.
FWIW, the average SS COLA for the last 15 years was 2.0%, for the last 30 years it was 2.3%.
That is how savvy people look at the mortgage/not in retirement question.
Of course, that is for buying a house. The question of rent vs. buy is another question.
I will note that one point is always touted to people who buy residential real-estate to rent it out. "Your tenant pays off your house for you. After 30 years your tenants have paid off the house but you still collect rent each and every month."
Then you should be doing a cash out refinance and investing the proceeds.
The problem(s) is path dependency.
-
Build-up of equity is very slow in the early years of the mortgage, so unless the house value has gone up substantially you can’t do this soon.
-
Lenders are very negative on cash-out refinances. They charge more points, higher interest rates, and lower LTV.
Used to be that you could roll a HELOC balance into a rate-and-terms refi to effectively get cash out, but ever since 2008 they consider that a cash-out refi. -
There are costs to a refi. All-in, I suspect the costs are around 2%-3% of the new loan balance. Sure, sometimes you can roll the cost into the new loan, but that just spreads out the cost doesn’t eliminate it.
I read about a Google employee that bought a large truck, outfitted the back of it with some amenities, and parked in the Google parking lot. There was the initial outlay for the truck, and whatever he put in it, but then he lived for almost free.
I read about a Google employee that bought a large truck, outfitted the back of it with some amenities, and parked in the Google parking lot.
If I worked at Google, I might do the same since there are eateries (free food, yeah!), quiet areas to read or study, a gym to workout, showers & bathrooms to clean up, and, of course, lots of internet access.
Heck, with the way you set up your office, you might not even need the large truck itself if you “worked” a lot…
https://www.insider.com/coolest-perks-of-working-at-google-i…
Pete
2 Likes
Apparently he had to move (ironically, because of the publicity).
https://www.sfgate.com/lifestyle/article/Google-employee-sti…
But, yes, a lot of free goodies, available showers, etc. I’ve heard of others who do similar, and have a gym membership (for the showers and workouts).
So that is probably a lot cheaper than renting an apt/condo, or buying a home. If that’s all one is concerned about. If one wants to upgrade their lifestyle, they’ll likely have to rent or buy an actual dwelling. Personal choice. I don’t regret owning a home (most of the time! 
It’s a trade-off. I never even considered how much I could have earned if I directed my mortgage payments into the stock market, and lived in a truck instead.
1poorguy
PSUEngineer analyzes,
Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.
I’m surprised intercst would even rent an apartment. If the bottom line is the most important factor, he should be pitching a tent or using a nice cardboard box under the nearby overpass.
I understand that “rent vs. buy” is a difficult concept since it goes against what you’ve been taught by the real estate and banking industry over your lifetime.
To repeat: I’m not suggesting that anyone buy a smaller, less luxurious home than they’d like. Just that it makes to do a “rent vs buy calculation” to inform your real estate decisions.
I saved about a million dollars over the 25 years I spent in Houston by renting in comfortable, well-maintained, resort-style garden apartments with palm trees, pools, and tennis courts. And that million dollars compounded into millions more since it was invested in the stock market rather than a poorly appreciating single family residence.
It’s just arithmetic.
intercst
3 Likes
If I worked at Google, I might do the same since there are eateries (free food, yeah!), quiet areas to read or study, a gym to workout, showers & bathrooms to clean up, and, of course, lots of internet access.
I was invited to a Google happy hour last Thursday. As good as you think it is, it is better. The happy hour included free food and drinks, like chicken wings, beer and wine, that sort of thing, which they do once a week. There are restaurants and coffee shops of various styles located throughout the buildings. On top of that, they have what they call micro-kitchens (IIRC) that aren’t very micro. They provide full self-service kitchens with all manner of snacks and soft drinks, with lots of nice seating. They had a complete game room with foosball, pinball, pool, arcade games, console games (PS4) etc. with smaller game rooms throughout the campus. Because you don’t want your employees to walk too far to play free Ms Pacman. In addition to the regular work spaces, they have lots of lounge areas with tables and booths where you can work if you like. If that wasn’t enough, they have music rooms, stocked with drums, guitars, and keyboards. Oh, and they have nap pods. Yes, they encourage you to sleep at work. I’ve been in Amazon and Microsoft offices and nothing compares to Google.
I totally get the guy living in the van. Because whatever you’ve got at home, what they got at the office is better.
11 Likes
If golfwaymore had the assets. why didn’t he use those assets to make the mortgage payments? Methinks there is more to this story.
I don’t recall the full story, but he bought income producing properties. Like a self-storage, a ranch, stuff like that, some of which he developed. When the housing bubble burst (which actually hit commercial real estate much harder), his stocks were crashing at the same time the business income dried up. Again, my memory is a little fuzzy, but I think the loans got called and he couldn’t cover it by selling because everything was so far under water.
I understand that “rent vs. buy” is a difficult concept since it goes against what you’ve been taught by the real estate and banking industry over your lifetime.
To repeat: I’m not suggesting that anyone buy a smaller, less luxurious home than they’d like. Just that it makes to do a “rent vs buy calculation” to inform your real estate decisions.
I have lived in apartments and hated that lifestyle. Therefore, for me, running a rent vs buy analysis is a useless task. My calculation is buy small, buy older, buy larger, or combination of those factors. Also good school district or not and distance of commute to work. Renting is never part of the housing calculation.
PSU
5 Likes
I read about a Google employee that bought a large truck, outfitted the back of it with some amenities, and parked in the Google parking lot. There was the initial outlay for the truck, and whatever he put in it, but then he lived for almost free.
i saw that to…he bought a used box truck…think 6 wheels and lived in it…
You Tube is full of people living i vans, motor homes and cars…
check out Creativity RV, and Nikki Delventhal for examples…
PSUEngineer analyzes,
<<To repeat: I’m not suggesting that anyone buy a smaller, less luxurious home than they’d like. Just that it makes to do a “rent vs buy calculation” to inform your real estate decisions.>>
I have lived in apartments and hated that lifestyle. Therefore, for me, running a rent vs buy analysis is a useless task. My calculation is buy small, buy older, buy larger, or combination of those factors. Also good school district or not and distance of commute to work. Renting is never part of the housing calculation.
Who says you need to live in an apartment? In every city I’ve ever lived in there are single-family homes on lots of various sizes available for rent.
The real estate and banking industry has trained you well.
intercst
4 Likes
A mortgage (if you do it sensibly) is long term, fixed rate, tax advantaged, and non-callable. Give me those terms and I absolutely would borrow to buy an S&P 500 index fund.
Then you should be doing a cash out refinance and investing the proceeds.
Except that the interest on the cash-out portion of a cash-out refinance is not deductible under current tax law.
Ira
HOA fees, and maintenance inside the condo which would be covered by the landlord in a rental apartment.
Depends on where you live. When we had a short less than 5 year stop in N NJ, we rented. Rentals were so in demand that the tenant paid not only the HOA, but the one month Realtor fee.
IP
Who says you need to live in an apartment? In every city I’ve ever lived in there are single-family homes on lots of various sizes available for rent.
The real estate and banking industry has trained you well.
Because moving sucks. For a single guy who can probably put all his belongings in the trunk of his car, you may not understand this. How many rental homes are long term rentals? I just moved from my previous house of 23 years. Chances are slim I would have found a rental that long. Also I had control over the house, not a landlord.
I always find it funny that if someone doesn’t agree with you, they are trained well by some industry. You are quite full of yourself who thinks anyone who lives differently is brainwashed by some external entity. Your lifestyle is the only correct one.
PSU
25 Likes
“Who says you need to live in an apartment? In every city I’ve ever lived in there are single-family homes on lots of various sizes available for rent.”
Around here, a one bedroom might go for $1100-1700 a month. Houses now rent for $3500 and up, plus you’ll pay the much bigger utility bills for the house and likely have to cut the grass, shovel the snow, etc.
All that done at an apartment - and your utility bills will typically be smaller.
There’s nothing to say you can stay in that home more than a year or two - it might change hands
t.
I always find it funny that if someone doesn’t agree with you, they are trained well by some industry.
I’m not talking about “you” specifically.
If you’ve read anything on Behavioral Economics, you’ll find that Americans have been taught from birth (from parents and savvy marketers) to do all kinds of things that don’t make financial sense.
And then there’s the stuff that’s hardwired into our brains. Like the rat video I posted a few day’s ago. (i.e., the rats quickly discerned that pushing button #2 would give them the most food over time and had an 80% success rate. Humans kept pushing button #1 like it was a slot machine ready to pay out and netted a 68% success rate.)
Rat test is 10 minutes into the video.
https://youtu.be/5eW6Eagr9XA
It takes deliberate practice to overcome these behavioral biases, but the result is an easier, more profitable life.
Think Fast, Think Slow
by Danial Kahneman
https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow
intercst
3 Likes