[quote=anonymous]

It would be fun to hear your argument in favor of not owning a home.

Client's townhouse is too small.  They aren't sure where they want to move.  They sell their townhouse for a handsome profit.  They happen to find a large house that is on the market for $600,000.  Owner agrees to rent instead of sell and is only charging $1,500/month. 

I don't know about you, but if I liked a $600,000 house and I could get it for $1500/month, I'd rent over buying it any day of the week.  Add in that they'll be moving within 2 years and prices are falling, renting is a complete no brainer.

[/quote]

It is also a temporary solution to a temporary problem.

Proving something with the exception to the rule is faulty thinking.

Back to the original post, my immediate question was whether her employer would be matching contributions. 

I see everyone's point about her sticking with it, and if she pays the debt she certainly needs some advice on how to not get herself in the same predicament in 2 years.  However, if she would be getting 100% match on that money, she is getting a $500/month raise (the matching funds) if she pays off the debt.  It would only take her 2 1/2 years to replace $30,000 at $1,000/month.

[quote=EDJ4now]

Back to the original post, my immediate question was whether her employer would be matching contributions. 

I see everyone's point about her sticking with it, and if she pays the debt she certainly needs some advice on how to not get herself in the same predicament in 2 years.  However, if she would be getting 100% match on that money, she is getting a $500/month raise (the matching funds) if she pays off the debt.  It would only take her 2 1/2 years to replace $30,000 at $1,000/month.

[/quote]

What a great 401(k) she must have.  It was her husband's, they divorced, she got a piece of it, and her husband's employer keeps matching her contributions.

The challenge was; " It would be fun to hear your argument in favor of not owning a home."

Not ; " Should you be a homeowner before an investor?" (Mostly because this is a stupid question given the facts of the world being that most "homeowners" are living in the bank's house.)

As a result, this "How many investors are in the military?" is a rhetorical non sequitor.

And this "I think you'll find that among the officer corps--the most likely investors--many will buy homes at their new assignment.  I understand the risk of having to sell if you're transferred in a down cycle but they're warriiors, risk takers, and many of them will take the risk." is capitulation of logic to testosterone.

The genisis of this thread is economics of the deal. I injected the reality that the psychology of the investor is germanie and you went all clinical on us saying that we're not psychologists etc etc.. then when you are challenged, you go all "they're risk takers and warriors" regadless of the economic virtue of the position.

The officer would be smarter NOT to own as a practice. Occasionally it would have been better to own, from an economic standpoint.

"Where do you come up with the idea that the buyer pays a commission on a real estate transaction?"

Questions like these lead to 700 page "Annuity sales policy guides". Of course the buyer pays the commission, he just never sees it because it is built into the price. But if you bought and sold the same day, youd be 12% in the hole after the bid/ask spread and the 6% commission.

"If you're using your mutual fund income to help pay the rent, how much growth are you getting?"

Let's say that buying a $1,000,000 home on the East Side takes 200,000 down and a note for 800,000 (let's not forget that 56,000 of that is commission paid to the broker). $5,322/month plus the loss of income on 200,000.

Compare this to some nice rent controlled space at let's call it $4,000 per month (which is way high). $200,000 at 4.75% tax free is 9,500/year... 790/month. Which when deducted from the 4,000 means that the client is paying 3,210, which gives him 2100 per month to invest for growth.

"Isn't "massive" relative?  Are you of the opinion that homeownership is beyond the reach of the "average guy" because of the downpayment?"

Have you been paying attention to the mortgage companies' troubles lately? Apparently, like so many other things, you only have a slippery grasp of the headlines and can't see what is behind them.

"Do you really believe that a renter does not pay to maintain their rental unit?"

Have you ever been a landlord?

DA,

I read your response and thought maybe I misread the initial post.  I didn't.  [quote=Chris Hansen]

She also mentioned that eliminating this debt will allow her to defer up to $500 a month in savings for her employer sponsored plan.

[/quote]

I'm going out on a limb and saying that we are talking about her employer, not her exhusband's.

How about a loan against the 401(k)?

Gets to keep her $30,000.00 and it has the ability to grow.  Consolidates high interest debt into lower rate, that she has to be responsible for paying off. 

Assuming they have loans on the 401K then yes, but she wouldn't be able to roll it.

[quote=Whomitmayconcer]

"Do you really believe that a renter does not pay to maintain their rental unit?"

Have you ever been a landlord?

[/quote]

Yep, I currently own three single family homes as rental property.

I consider the cost of maintenance and taxes in deciding how much rent to charge--there is not a landlord who does not do that.

But they mostly become a write off.

The cost of replacing the roof, of fixing the running toilet, of Rotorootering the pipes AGAIN, of painting the house and the common space and so many other out of pocket and capitalized costs not to mention the plowing and lawn mowing etc etc...

Talk about your costly investment! And we haven't even touched on the value of your time. yes, every landlord considers all these things, and then sets their rental price based on what the market will bear. At times the market will bear overpayment, but most of the time, it's a renters market. Why? Because any money is better than the no money that vacancy provides.

But let me ask you this then... You have three single family homes that you are (presumably) renting. How ethical is it for you to provide these homes, considering that you feel that it is best for people toown a home instead of renting? Should your renters liquidate their 401ks and all other assets so that they can buy a home?

According to what you've said, the answer is, no! it is not ethical.

From a pure investment standpoint the purchase of a home is a bad idea of monunetal porportions.

Just an example from my market:

200k financed at 6% with 10% down requires the following payments to meet your monthly obligations.

$1079 PrinciPal and interest; $325 taxes and Insurance; $75 PMI  for a total of $1479.  Of that total roughly $150 is not an expense that can be used to build equity.  So 30 years later the house is paid off and if your lucky worth $800,000.  That is saying your are extremly lucky.

In the same market you can rent a house for $800 all in.  You then take the the remainging $679 that would have been used to pay expenses and make a monthly investment in your favorite VA.  The VA is started with an initial investment of 20k that would have been used for the down payment.  Year 30 your will have roughly 1.6 million assuming a return of 9.5%

[quote=Whomitmayconcer]

But they mostly become a write off.

The cost of replacing the roof, of fixing the running toilet, of Rotorootering the pipes AGAIN, of painting the house and the common space and so many other out of pocket and capitalized costs not to mention the plowing and lawn mowing etc etc...

Talk about your costly investment! And we haven't even touched on the value of your time. yes, every landlord considers all these things, and then sets their rental price based on what the market will bear. At times the market will bear overpayment, but most of the time, it's a renters market. Why? Because any money is better than the no money that vacancy provides.

But let me ask you this then... You have three single family homes that you are (presumably) renting. How ethical is it for you to provide these homes, considering that you feel that it is best for people toown a home instead of renting? Should your renters liquidate their 401ks and all other assets so that they can buy a home?

According to what you've said, the answer is, no! it is not ethical.

[/quote]

Tenants rarely have 401(k) plans that are worth enough to make a downpayment.

If they do they should consider liquidating their plan and putting the money into a downpayment on a home.

If you buy a $300,000 home for 10% down what is your return if the home appreciates only 4% per year?

I was talking with a friend who bought a house on the water in Norwalk in 1985.  4000 square feet, 4 bedrooms 4 baths.  He still had kids at home so he needed the space.

He paid roughly $500,000 at that time, with a downpayment of $100,000.

It's now 27 years later.  The house has been paid off and was recently assessed at $4,900,000.  He believes he could sell it for about to $6 million since two doors down just sold for close to $7 million but it has five bedrooms and half an acre more land.

That's better than any mutual fund you can name.

[quote=the word]

From a pure investment standpoint the purchase of a home is a bad idea of monunetal porportions.

Just an example from my market:

200k financed at 6% with 10% down requires the following payments to meet your monthly obligations.

$1079 PrinciPal and interest; $325 taxes and Insurance; $75 PMI  for a total of $1479.  Of that total roughly $150 is not an expense that can be used to build equity.  So 30 years later the house is paid off and if your lucky worth $800,000.  That is saying your are extremly lucky.

In the same market you can rent a house for $800 all in.  You then take the the remainging $679 that would have been used to pay expenses and make a monthly investment in your favorite VA.  The VA is started with an initial investment of 20k that would have been used for the down payment.  Year 30 your will have roughly 1.6 million assuming a return of 9.5%

[/quote]

You cannot rent a $250,000 house for $800.  Rents should be about .75% of value per month.  That will make the payment about $1,800 per month.

A "financial advisor" who does not understand the importance of homeownership--both financial and emotional benefits--should hang their head in shame.

Is it possible that her husband ran up the debt bill that wasn't as significant in comparison to the combined family income as it is to her as a divorcee splitting all of the assets and liabilities down the middle?

Just a thought...  Also, shouldn't there be a premium placed on the quality of life improvement this lady might experience by paying off her oppressive debt?  I'm on the fence personally...

[quote=the word]

From a pure investment standpoint the purchase of a home is a bad idea of monunetal porportions.

Just an example from my market:

200k financed at 6% with 10% down requires the following payments to meet your monthly obligations.

$1079 PrinciPal and interest; $325 taxes and Insurance; $75 PMI  for a total of $1479.  Of that total roughly $150 is not an expense that can be used to build equity.  So 30 years later the house is paid off and if your lucky worth $800,000.  That is saying your are extremly lucky.

In the same market you can rent a house for $800 all in.  You then take the the remainging $679 that would have been used to pay expenses and make a monthly investment in your favorite VA.  The VA is started with an initial investment of 20k that would have been used for the down payment.  Year 30 your will have roughly 1.6 million assuming a return of 9.5%

It's now 27 years later

Before some kid jumps in my stuff--I know that 1985 to 2007 is 22 years.  I cannot explain why I thought it was 27 other than a brain fart.

You know what they say, “where there’s fart, there’s sh*t”

[quote=DAtoo]I cannot explain why I thought it was 27 other than a brain fart.[/quote]

The 27 is your IQ.

[quote=DAtoo][quote=the word]

From a pure investment standpoint the purchase of a home is a bad idea of monunetal porportions.

Just an example from my market:

200k financed at 6% with 10% down requires the following payments to meet your monthly obligations.

$1079 PrinciPal and interest; $325 taxes and Insurance; $75 PMI  for a total of $1479.  Of that total roughly $150 is not an expense that can be used to build equity.  So 30 years later the house is paid off and if your lucky worth $800,000.  That is saying your are extremly lucky.

In the same market you can rent a house for $800 all in.  You then take the the remainging $679 that would have been used to pay expenses and make a monthly investment in your favorite VA.  The VA is started with an initial investment of 20k that would have been used for the down payment.  Year 30 your will have roughly 1.6 million assuming a return of 9.5%

[/quote]

You cannot rent a $250,000 house for $800.  Rents should be about .75% of value per month.  That will make the payment about $1,800 per month.

A "financial advisor" who does not understand the importance of homeownership--both financial and emotional benefits--should hang their head in shame.

[/quote]

Well, i said a 200k home rents for $800, not 250k.  And yes in my market you can rent a 200k home for $800. 

There are emotional benefits.  Please tell me the financial benefits of owning a home in the above situation. 

Putsy, there are plenty of times that owning a house makes sense.  There are plenty of times that renting makes sense.  Also, it is not just a financial decision.  Many people simply don't want to deal with some of the hassles of home ownership.

You cannot rent a $250,000 house for $800.  Rents should be about .75% of value per month.  That will make the payment about $1,800 per month.

I just told you that my client rented a $600,000 house for $1500/month.   You can rent one for whatever price the owner is willing to accept and you are willing to pay.

There are too many exceptions to renting being better than buying to make a blanket statement that it is better to buy.

The Word is right about the loan.  If the plan allows it, that would bail her out of those high fees, while still keeping the pressure on her to pay.

Have her sign some kind of doc that indicates that if she even looks at another credit card app, she's fired.  While legally it really doesn't mean anything, psychologically it may be what she needs to prevent  her from blowing herself up again.

I would dig, and dig hard.  Find out what led to her charging up those cards.  Three husbands?? Yikes.

Bobby may be right:  she needs a new husband.