Why Pay Cash for a House?

03 Saturday Feb 2018

Posted by moneygooguru in Debt, Growing Wealth, House

Tags

home, House, investment, million dollars, mortgage, pay cash, rent or buy

Or “How Not to Lose a Million Dollars Buying a House”

How often have you heard someone say “I’m sick of throwing away money on rent so I’m buying a house.” Why do people think this? After all, you can rent from a landlord with little risk or “rent” from the banker with a lot of risk. Why do people think they’ll automatically be financially ahead if they buy a home?

Our house, as an investment, has been awful. We bought it in a great location at a time when home prices were going up, up, up in our area. How could we go wrong with that? Yet we had no idea we were nearly at the height of a housing bubble, and it was about to burst. The short story is, after the bubble popped and even with an economic rebound that continued for ten years afterward, our “investment” gained us a whopping 1% average annual return minus mortgage interest, taxes, insurance and upkeep. A terrible investment. We lost big time.

But we love our home and don’t regret buying it at all. Why? It has to do with the advice that we often give people about buying a house: Buy a house because of the location in a great neighborhood, or the view, or proximity to your favorite people or places, or to have a big yard or grand garden, or to raise a family, or to have a bunch of animals. These “wants” for owning a house, however, will cost you big time. If you’re not okay with that, then keep renting.

All About the Math

The main reason that buying a home is not really a good investment is simple. Simple math, that is, that the banks would rather you didn’t do. If you buy a house and get a mortgage, your home will have to appreciate by up to 7% or more a year just to break even (with inflation factored in this number could be 10% or more). Do the math: Add up the annual cost of your mortgage interest, maintenance, property taxes, and insurance. Divide it by the value of your home. Don’t forget to add the annual inflation rate on top of that. It all adds up to a pretty hefty annual percentage rate. Are home prices going up by that rate in your area? Even if they are, for how long can you count on that before the market has to correct?

If you want to reduce the magnitude of this poor investment choice, then the best thing you can do is pay cash for a house. Seriously, you should.

venus and mars Why Pay Cash For A House?

Answer: Because you may lose a million dollars otherwise.

Example: If you buy a house for $250,000, put a $50,000 down payment, and get a 30 year mortgage for the remaining $200,000, the lost investment opportunity could be worth well over ONE MILLION DOLLARS! Do the math. Assume monthly interest payments made to the bank on your loan balance given an annual interest rate of 5% over 30 years, and what that same amount of monthly mortgage interest if invested elsewhere could have become if it returned 8% annually.

Bottom line is this: Buy a house because you want a home, not fooling yourself into thinking you are making some great investment when you’re really losing a million (unless you pay cash or pay it off way early!).

Is Time On Your Side?

07 Thursday Mar 2013

Posted by moneygooguru in Debt, Growing Wealth, saving money, Time

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consumerville, dead presidents, get more time, lost time, million dollars, money with plan, party, time for money, time prison

If you had several million dollars and never had to work again, what would you want to do with your time? Party! How one would spend their precious time is really at the heart of most people’s wildest dreams when they imagine not having to work. But since most of us are not wealthy, how we spend our time is tangled up with how we spend our money. Since most of us blow most all the money we earn, we are not able to spend our time as we please. That bites.

We trade our time and ultimately much of our lives for money. That’s the harsh and depressing reality. Would you drag yourself to work and put up with the office dramas and divas if there weren’t some dead presidents in it for you? Yet even piles of money won’t add any more days to your life. The best we can do is to figure out how to squeeze more time out of each day to do the things that we really want to do.

I’m not talking about time management. No, we should understand the true cause of why we can’t spend our time as we please. We should hope that it slaps us upside the head. It should, because the reason we’re time-poor is right in front of our faces. Just look around your house, your garage, your driveway, your yard. See all the balls and chains?

If you want more time each day to do the things that matter most to you, then you’re going to have to trade something for it – your spending frenzy and fascination with stuff. You’ll have to grow some gonads to do this right. For many of us our stuff, and our desire to buy more of it, is a time prison. We are slaves in the land of the free. Yes, the biggest irony in our society.

We have to work too much, because we’re spending all we make buying way more than we need. Then to add insult to injury we’re spending most of our spare time taking care of it all and little time actually enjoying it. Such is the vicious cycle living in mega consumerville. Much of our lives, our energy, our opportunities, are ultimately traded for stuff. And our time is squandered, flushed down the drain, out of reach.

The solution is really pretty radically simple: Learn to tell your money where not to go and then someday it can tell you not to go to work anymore! That would be sweet. Your income (no matter what the level) is your greatest tool for gaining your freedom, for adding time to every day. So get mad about being robbed of it! Defend your money like a mother bear seeing a threat to her cubs. What you do (and don’t do) with your money is far more important than how much you make!

Money with a plan will stick around and give you time to enjoy. An impressive wad without a plan will mysteriously wander off and suck away all your spare time with it. And hope.