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General_Magician Special user United States 707 Posts |
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Properly handled debt can be a useful tool. Without it most people would never be able to purchase a house or a car. Most companies would go out of business if they couldn't secure loans to tide them through periods of low cash flow. But like any tool, debt can be abused. So it can become a bad thing. Apart from my Mortgage I live debt free. but it took several years, and finding a good paying job to get there. See, that's where you and I don't agree and that's OK, we just have a different point of view and style when it comes to managing finances. I don't see debt as a useful tool at all and as an un-necessary risk at best and indentured servitude at worst (such as student loan companies preying on young, naive college students for example). Your house can go down in value over the years (but if you purchase a place to live, it's not an investment). Nobody can predict how the market will behave in the future, not the housing market, not the stock market. One day, your investments are making money, the next day, they could be tanking like their is no tomorrow and your losing money and if you financed those investments with debt, your losing somebody else's money that you get to pay back rather than losing your own money. You can purchase a modular home or starter home with cash if you make decent money and save for your first home and as the years go by and you save more, you could sell that first home and use that money to purchase a second better home. You can rent a place to live and not have to worry about the house repairs and the risk that comes with having a mortgage loan (and don't think just because you have a fixed rate mortgage loan that you are immune from the bank or loan company screwing you or selling your loan to somebody else and that new company trying to change the terms of your loan or trying to find crafty ways around that fixed rate loan, the banks and loan companies don't care about you, they just care about squeezing every last single dime they can out of you and in many cases they don't behave ethically or engage in fair business practices either, all they care about is making money off of you and they certainly don't have your best interests in mind). Or if you really want freedom, you could eventually purchase an RV 5th wheel and decent truck to pull it, but my wife wants an apartment or house to live in, plus I am not sure if it's feasible to run a business out of an RV, something I have never checked up on. The only disadvantage I can think of to renting is having to buy yourself out of a lease or stay in the lease until it is over if you go with renting, plus, rent can potentially go up, but you don't necessarily have to stay in that apartment if they are jacking your rates up either. With a house, if you take out a mortgage loan and it turns out you have to move and you sell your home, you can still owe on your mortgage loan or maybe, just maybe, IF you are lucky and lady luck is smiling on you, you could sell your home and pay off your mortgage loan and still have a profit. But that's a big risk and lady luck isn't always smiling on all of us. You could sell your home and still owe on your mortgage. Not a good position to be in. Staying out of debt minimizes your risk exposure and keeps more options open that you wouldn't necessarily have if you were in debt.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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tommy Eternal Order Devil's Island 16544 Posts |
The banks are are on to a good thing as they borrow public money for next to nothing nothing and lend it to the public for some extraordinary rate. Or gamble with public money and if they lose the just keep doubling up until they win.
If there is a single truth about Magic, it is that nothing on earth so efficiently evades it.
Tommy |
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mastermindreader 1949 - 2017 Seattle, WA 12586 Posts |
As I said before, promptly paid debt is how credit ratings are raised. A good credit rating is essential if you want to rent a high-level apartment or condo, etc. And a good credit line, established by appropriate debt management is ESSENTIAL for the day to day operations of many highly successful businesses.
Debt itself is neither good nor bad. When incurred to purchase things beyond your means it can be a very bad thing indeed. When used in other ways it can be a valuable tool. |
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General_Magician Special user United States 707 Posts |
But I don't need a high level apartment or condo. I am happy with a one or two bedroom apartment and a business can still be profitable without the use or need of any kind of credit line. Trust me, if your business has cash and money, there are plenty of people ready to do business with you and you can still run your day to day operations. You don't HAVE TO HAVE a credit line to run your day to day operations. You just got to have the cash to pay for the day to day operations of your business, plus, the objective of any business is to maximize return to shareholders and you aren't going to do that if you are running credit lines and debt for your business. As long as your company has the cash people are ready to do business with you, not to mention if you ever need investors (which you need to be careful if you ever decide to bring any investors or new investors on board to a business) and they see your business is profitable and providing a return and not in debt, those investors probably are more likely to invest so long as you also have the proper liability insurance as well too.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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LobowolfXXX Inner circle La Famiglia 1196 Posts |
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On 2013-05-17 19:18, General_Magician wrote: Mortgage interest is tax deductible.
"Torture doesn't work" lol
Guess they forgot to tell Bill Buckley. "...as we reason and love, we are able to hope. And hope enables us to resist those things that would enslave us." |
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General_Magician Special user United States 707 Posts |
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On 2013-05-17 19:44, LobowolfXXX wrote: I am aware of that and loan companies use that as a selling point when trying to get you to sign on the dotted line. However, the benefit of a tax deduction from the mortgage interest is not worth the disadvantage of being in debt to a loan company or bank. I still view it as too risky (there are a lot of other variables that come into play when you go into debt that far outweigh the benefit of a tax deduction on interest) and I also think debt is just financially unhealthy despite any tax deduction benefit offered by the IRS.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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landmark Inner circle within a triangle 5194 Posts |
Yes, as someone who, at points in his life, has spent lots of dollars in rent, that's huge. Whether the mortgage deduction is equitable is another question.
I've just started reading David Graeber's book Debt: The First 5,000 Years which in the first few pages has absolutely grabbed me. His thesis--the concept of paying debts has always been considered sacrosanct. What if maybe it weren't so sacrosanct? What would happen? Who has the power to enforce debts? What happens when countries don't "pay up"? How does one country get to claim a debt on others? The answers are perhaps not so obvious. I'll let you know how it goes 500 pages later.
Click here to get Gerald Deutsch's Perverse Magic: The First Sixteen Years
All proceeds to Open Heart Magic charity. |
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General_Magician Special user United States 707 Posts |
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On 2013-05-17 19:59, landmark wrote: It's true that you would spend lots of money on rent, but you weren't in debt to a mortgage loan either when you did so nor were you paying property taxes or the repairs on the place (at least if you rented from a decent land lord you shouldn't have been). Now one can argue that by paying on a mortgage loan you are building equity, but that's not guaranteed equity and the value of the home can go down (or it could go up, but nobody has a crystal ball to accurately predict whether the value of a home will go up or down, so using debt to acquire shelter in this way might not be the best way to acquire shelter and the house is not really yours until you have completely paid off the loan, plus, you are on the hook for the repairs and of course any property taxes on top of the monthly payment on a mortgage loan all while the value of the house goes up or down). You also have to consider that property taxes in various different counties can go up or down, but most likely up and it's always for a good cause and if you can't sell the house, you can't escape paying those property taxes that just went up (again). You can always go and raise cane with the county about your property taxes going up, but they know they got you and there is not much you can do about it because it's not always easy to sell your home, so you end up getting used as an ATM machine by the county (this is one of the reasons why I seriously considered full time RVing, but my wife objected and I wasn't sure if it was possible for me to run my business if I was full time RVing and I understand my wife's objections to the notion of full time RVing especially when you consider that even a good 5th wheel doesn't have the living space of a house or an apartment but the freedom to just take off when you want is awesome). I don't mind paying taxes, but I also don't like being put in a position where the county can simply ignore any objections I might have and just take advantage of me and there is nothing I can do about it unless I am able to sell my house and move to a different county (which in many cases is not easy to do or will take some time before you are able to get a decent price for your home, all the while you got to pony up the extra cash to pay the newly raised property taxes or the county will take your house that you worked hard for). I would just prefer to acquire shelter by paying rent rather taking a risk and losing some of my options and financial flexibility by taking out a mortgage loan. Saving to pay cash on a starter or modular home seems smarter to me OR purchasing a house at a cheap price that needs fixing and then fixing up the house to where it looks decent IF you can afford to put the money into fixing up the house. Even if the value of the starter or modular home declines, at least it's paid for and you are not paying rent and that enables you to save more money to eventually buy a better house if you want or need to. And if the property taxes become THAT unbearable, you can always sell your house for a bargain and not have to worry about making up the difference of mortgage loan because you paid cash on the house and never took out a loan in the first place. I think it's smart to simply stay within your means. Now that book looks very interesting. I would like to read it, but I also have other obligations so, I don't have the time to read it. However, I would like to hear your opinion on the book. Seems like a very interesting book landmark.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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General_Magician Special user United States 707 Posts |
Here is an example of what I was talking about in my previous post: http://voices.yahoo.com/embattled-lausd-......ml?cat=8
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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Payne Inner circle Seattle 4571 Posts |
But you are paying property taxes and maintenance. It's part of your rent payment. If the property taxes go up, your rent will increase. If the landlord sells the building the new owner can raise your rent or not renew your lease as he has other plans for the property. And at the end of the day you have nothing to show for all the rent you've paid out.
One of the incentives for us to buy our house was to put a cap on our rent. Which at the time was going up once or twice a year. Currently we pay about half the going rate for a average rent on a property with half the square footage of our home. And in another few years we will own it outright. Plus it has increased in value fourfold in the twenty years we have lived there. You'd be hard pressed to find another investment that has increased in value at the same rate. Sure, owning isn't for everyone. But we have done very well for ourselves and don't feel burdened by the debt we incurred when we bought the house.
"America's Foremost Satirical Magician" -- Jeff McBride.
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LobowolfXXX Inner circle La Famiglia 1196 Posts |
I'm pretty much in complete agreement with Payne on this topic.
"Torture doesn't work" lol
Guess they forgot to tell Bill Buckley. "...as we reason and love, we are able to hope. And hope enables us to resist those things that would enslave us." |
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General_Magician Special user United States 707 Posts |
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Payne wrote: And if the rent increases because the property taxes increases, you can easily just not renew your lease and find a cheaper place that is reasonable in price. Once you own a house, you might be able to put a cap on your rent but you won't be able to put a cap on your property taxes nor is it guarantee that your house will go up in value or in your case given that your house has gone up in value, there is no guarantee it will continue to go up in value or that it won't go down in value. Your house might have very well went up in value for you, but it can still go down in value (it's kinda like the stock market boom of the 90s where people who owned stock had their value go up for a number of years, until the recession hit and stock prices plummeted, the same thing can happen in owning real estate or a home). I know people whose homes who went up in value quite a bit but then when the housing market crash came the value of their homes went way down (and the value of their homes ended up being worth less than what they owe on the mortgage). So, the value of your home might be up today 4 fold, but it could just as easily just go back down (maybe your neighborhood turns into a gangland paradise 10 or 20 years down the road or another housing market bubble bursts and this time it's your home value that takes the hit) and you might still be having to pay on that mortgage loan and their is no cap on your property taxes. And if a landlord raises his rent on a tenant to pay for increased property taxes, the tenant could just as easily not renew his lease and move to a more reasonably priced apartment. This could be bad for a landlord who also owes a mortgage on the property he is renting out and then he would have to scramble to find a renter, any renter(which I would hate to be in a position where I would have to take any renter, if I was a landlord, I would prefer to take a tenant I feel comfortable with). Renters don't have to keep renting from a specific landlord. Good renters have plenty of options to choose from. Now, you say a renter after paying all that money has nothing to show for it, I am not sure if I completely agree. At least he still has his freedom and his options and is not tied down to a mortgage loan or to a piece of property that he admittedly may or may not be able to sell (or he is able to sell for less than the current balance of his mortgage loan). In some cases, owning might be worth it if you are able to acquire the property at a bargain and pay outright cash for it rather than take out a mortgage loan but then their is the issue of property taxes you have to contend with as well when owning and the fact you may or may not be able to easily sell the house if the county starts taking advantage of their home owners. So if I was going to own a home, I would want to get the home at a bargain and pay outright cash for it and ideally want to make sure the house would sell easily to hedge against the risk that a county decides to take advantage of their home owners.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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General_Magician Special user United States 707 Posts |
See, like to me, property taxes is like inflation. In most cases both inflation and property taxes are going up, so I kinda treat property taxes as a risk just as I treat inflation as a risk because you can't control how high your property taxes go up (despite what some may say). You want to hedge against risk. When buying stock, you bargain hunt and you buy bargain stock on the stock market. I think the same principle could apply when buying property or a home. Bargain buy homes and property to give you instant equity that provides some margin of safety and choose a property that has the best probability of selling if you were to decide to sell. Ultimately my goal would be to purchase shelter and not so much investing, but I also want to have some margin of safety against property taxes while staying out of debt (no mortgage loans) which bargain hunting on property could help with that. I want value for my money when I buy property so I am going to bargain hunt not to mention be able to sell in case the county decides to go on a tax binge on homeowners and that easier to do when you bought the home at a bargain with no mortgage loan and had instant equity to begin with.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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w_s_anderson Inner circle The United States 1226 Posts |
I guess it just depends on what you want in life. If you are completely content living in a 2 bedroom apartment all your life then GREAT, don't have a mortgage. That is not for me though so I am happy to take on a manageable debt load. I am currently building a new home, the debt on my mortgage is close to 3%, and I will own it outright well before I retire. However, your rent payments will continue until you die. Don't you see some inherent risk in that? The benefits to owning property vs renting are vast, and in my opinion worth the risk of having a mortgage in order to obtain it.
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General_Magician Special user United States 707 Posts |
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I guess it just depends on what you want in life. If you are completely content living in a 2 bedroom apartment all your life then GREAT, don't have a mortgage. That is not for me though so I am happy to take on a manageable debt load. I am currently building a new home, the debt on my mortgage is close to 3%, and I will own it outright well before I retire. However, your rent payments will continue until you die. Don't you see some inherent risk in that? The benefits to owning property vs renting are vast, and in my opinion worth the risk of having a mortgage in order to obtain it. Even if you own and pay off your mortgage you will still have to pay property taxes. I certainly don't mind owning IF I can own debt free and be able to easily sell the house if I need to, ideally at a profit (though this may not be possible but if I am able to sell easily if I need to without owing a mortgage this would be acceptable). Property taxes can be reasonable when you first buy, but the county can also certainly raise your tax rates and often they do because they know a lot of homeowners can't easily sell their homes right off the bat and if you don't pay, they will just take your house and probably auction it off.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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General_Magician Special user United States 707 Posts |
See, like when you take out a fixed rate mortgage loan that loan also comes with an escrow. You monthly payment on the fixed rate mortgage loan could go up because your property taxes go up (escrow is figured in you monthly loan payment). The escrow is what pays your property taxes. Insurance premiums can also go up as well on your loan, such as mortgage insurance that the banks or loan companies use to hedge their risk in lending you the money and it's your escrow that pays those insurance premiums in addition to any property taxes. So your monthly payment can up on your fixed rate loan because property taxes and various different insurance premiums have gone up and that and that additional money from the rate increase the lender will take and put into escrow to pay for the increase in insurance and property taxes.
When you pay your mortgage payment every month on a fixed rate loan you are not just paying on your mortgage loan itself but also into your escrow which the lender uses to pay your property taxes and insurance premiums on your loan (and I think homeowners insurance falls into this category in addition to the mortgage insurance). Mortgage insurance, which you pay out of your escrow, is used by the banks in the event you default on your loan and they have repossess the house and sell it to recoup their original investment, but the value of that property might have declined, so to get a full recovery of their original investment they will then turn to the mortgage insurance you paid for out of your escrow account to recover the difference. Now a landlord could in turn jack up his rates to his tenants to pay for any rate increase on his fixed rate mortgage loan he has on the property, but then the tenants could then in turn go to another county after their lease is up where the property taxes are more reasonable (and maybe property owners in that area might not have to quite as much insurance as another area or the premiums might be more reasonable) and the rent prices for renting are more reasonable.
"Never fear shadows. They simply mean there is a light shining somewhere nearby." -unknown
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silvercup Loyal user 223 Posts |
The paper in your pocket represents debt.
It's no wonder people are so fond of it. |
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