Putsy, a $500,000 house growing to $5,000,000 in 22 years is an 11% return if we assume that the client never had to put a single dime into the house and never had to pay any taxes and never had to pay homeowner's insurance, etc.  What mutual funds have done better, you ask.  Answer: Lots of them.

[quote=DAtoo] 

Tenants rarely have 401(k) plans that are worth enough to make a downpayment. Are you saying that a downpayment is beyond the grasp of the "Average guy"?

If they do they should consider liquidating their plan and putting the money into a downpayment on a home. I'm sure they do, but after considering, they decide against, for a variety of good reasons.

If you buy a $300,000 home for 10% down what is your return if the home appreciates only 4% per year? Depends on what your taxes are and what your other expenses are now doesn't it? Oh wait those only matter when we're talking about the brokerage industry right?

I was talking with a friend (As IF!) 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.

The poor dumb sonofabitch! I knew the guy who used to live next door to him in the old neighborhood. He put the 100,000 into MSFT the next year. He holds nearly 1,031,000 shares today.  He'd give your friend a call and buy his house if it were in a classier neighborhood!

I seem to remember someone saying, proving the rule by using the exception to the rule is sloppy thinking. I seem to remember that it was you. But you don't care what you said only what you're saying right now.

You are a Putz!

[quote=anonymous]

Putsy, a $500,000 house growing to $5,000,000 in 22 years is an 11% return if we assume that the client never had to put a single dime into the house and never had to pay any taxes and never had to pay homeowner's insurance, etc.  What mutual funds have done better, you ask.  Answer: Lots of them.

[/quote]

How about $100,000 growing into $5,000,000?  He didn't buy the place for cash.

Idiot.

[quote=anonymous]

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.

[/quote]

Every guy in the world who cannot imagine himself being able to actually get the downpayment together will swear that he's got it all figured out, and that renting is the way to go.

Meanwhile homeownership is still the single most sought after sign of stability in the country--hell, in the world.

How about $100,000 plus costs for upgrades, repairs, interest on the mortgage, taxes, insurance, lost opportunity costs on all the above that were paid.....did I leave anything out?

Math is not money and money is not math, putsy.

[quote=deekay]

How about $100,000 plus costs for upgrades, repairs, interest on the mortgage, taxes, insurance, lost opportunity costs on all the above that were paid.....did I leave anything out?

Math is not money and money is not math, putsy.

[/quote]

I agree, and that's why you'll find that every homeowner in the world will do anything they can to save their home.

He still paid $500k total, plus interest. 

[quote=DAtoo][quote=anonymous]

Putsy, a $500,000 house growing to $5,000,000 in 22 years is an 11% return if we assume that the client never had to put a single dime into the house and never had to pay any taxes and never had to pay homeowner's insurance, etc.  What mutual funds have done better, you ask.  Answer: Lots of them.

[/quote]

How about $100,000 growing into $5,000,000?  He didn't buy the place for cash.

Idiot.

"I agree, and that's why you'll find that every homeowner in the world will do anything they can to save their home."

Yeah, that's the reason! Got nothin to do with needing a place to live and the shame that he'd feel if he was forced to sell his "American...Hell the World's dream". Whatever everybody says is the truth isn't that about what your argument boils down to there DA2?

Meanwhile the question is "what is the best use of money?" Not "how many people have hit the Lottery?"

Meanwhile you didn't respond to the MSFT $100,000 to $30,000,000  point. Why? Because you'd rather compare the exception to the standard.

No wonder you failed as a salesman, you can't even convince a group of homeowners (some with more than one) on the efficacy of homeownership! You couldn't sell chocolate bars to ten year olds if you sold them for crickets, one for one!

I love the way you won't address the "cost to carry" issue, you, the guy who is all about the elimination of carrying charges for investment councillors.

Not to mention, some "Friend" bragging about how they did in a real estate deal especially after he had to listen to you bloviate about how good the stock market has been to the man of above average intellect and ballsize who writes put options against stocks in a rising market.... I don't find any of the "facts" in your case quite compelling as you would like them to be.

How about $100,000 growing into $5,000,000?  He didn't buy the place for cash.

If you want a fair comparison, shouldn't we then compare it to an investment where an investor put in $500,000, but $400,000 was borrowed from dad.  That way, we can pretend that it was also only a $100,000 investment.  T

[quote=DAtoo][quote=the word]

[/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.

[/quote]

Beg to differ, I'm in a $500k house for $1200 which by your accounts "should" be $3600.  I'm sure every market is differnt but that seems waay to much to pay for rent to me. 

Insanity.

Thanks (I think) for all of the replies. I believe I've decided on the best course of action and will elaborate in a minute. For now let me add a few items that will shed light on the situation. FWIW, I originally posted this morning before heading to the office so I was in a hurry. Here is the additional info:

1. Client is not an irresponsible spender. Source of debt is high interest student loans, credit cards from health scare as well as emergency/mandatory home repair needs.

2. Client does own a home. She has two roommates and in all honesty, probably needs a 3rd roommate but can make do without.

3. Home is a recent purchase; 100% financed, zero equity and if I'm not mistaken, interest only at this point.

4. Client makes appx $45k/year.

5. The employer sponsored plan is a SIMPLE and the employer matches 3%. The deferral she prosposes of $500 is from her own pay and does not include an employer match. The reason she can not make such a contribution now is because she is using her income to service the existing debt.

6. In this case, there will be no loan provisions allowed on this 401K since the spouse is no longer employed and the court is seeking to split and close the participants plan

Before I offer my plan, there is one thing that is a potential conflict for me. If I advise her to eliminate her debt, I lose out on the assets. The companies SIMPLE is held with another firm. I won't even generate revenue to liquidating an account since she'll be depositing a check from the split 401K. If this business were based on good will, I'd be rich.

Decision:
This was fairly easy but I wanted (and appreciated hearing) others opinions. I will recommend she eliminate the debt. Any return she would get with me would need to be extremely high to justify keeping the debt. It is not likely to generate these returns without a high risk portfolio and frankly, I don't feel like debating this with my compliance group.

I think its nice to have an investment portfolio but it doesn't make sense when you have a boat load of debt you can't afford waiting in the wings. Plus, it's possible she would nibble away on the account while not paying the debt with the distributions.

So thats that. Unless she insist otherwise, that is my rationale and recommendation.

Thoughts?

[quote=DAtoo][quote=the word]

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.[/quote]Beg to differ, I'm in a $500k house for $1200 which by your accounts "should" be $3600.  I'm sure every market is differnt but that seems waay to much to pay for rent to me.[/quote]

Yet another sign of a waaaaaaay overdone real estate market.  When the gross rent (before expenses) is a whopping 2.88% of the FMV, the FMV is way too high or the rent is way too low...take your pick.

[quote=Chris Hansen]

Insanity.

Thanks (I think) for all of the replies. I believe I've decided on the best course of action and will elaborate in a minute. For now let me add a few items that will shed light on the situation. FWIW, I originally posted this morning before heading to the office so I was in a hurry. Here is the additional info:

1. Client is not an irresponsible spender. Source of debt is high interest student loans, credit cards from health scare as well as emergency/mandatory home repair needs.

2. Client does own a home. She has two roommates and in all honesty, probably needs a 3rd roommate but can make do without.

3. Home is a recent purchase; 100% financed, zero equity and if I'm not mistaken, interest only at this point.

4. Client makes appx $45k/year.

5. The employer sponsored plan is a SIMPLE and the employer matches 3%. The deferral she prosposes of $500 is from her own pay and does not include an employer match. The reason she can not make such a contribution now is because she is using her income to service the existing debt.

6. In this case, there will be no loan provisions allowed on this 401K since the spouse is no longer employed and the court is seeking to split and close the participants plan

Before I offer my plan, there is one thing that is a potential conflict for me. If I advise her to eliminate her debt, I lose out on the assets. The companies SIMPLE is held with another firm. I won't even generate revenue to liquidating an account since she'll be depositing a check from the split 401K. If this business were based on good will, I'd be rich.

Decision:
This was fairly easy but I wanted (and appreciated hearing) others opinions. I will recommend she eliminate the debt. Any return she would get with me would need to be extremely high to justify keeping the debt. It is not likely to generate these returns without a high risk portfolio and frankly, I don't feel like debating this with my compliance group.

I think its nice to have an investment portfolio but it doesn't make sense when you have a boat load of debt you can't afford waiting in the wings. Plus, it's possible she would nibble away on the account while not paying the debt with the distributions.

So thats that. Unless she insist otherwise, that is my rationale and recommendation.

Thoughts?

[quote=ExPropTrader][quote=DAtoo][quote=the word]

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.[/quote]Beg to differ, I'm in a $500k house for $1200 which by your accounts "should" be $3600.  I'm sure every market is differnt but that seems waay to much to pay for rent to me.[/quote]

Yet another sign of a waaaaaaay overdone real estate market.  When the gross rent (before expenses) is a whopping 2.88% of the FMV, the FMV is way too high or the rent is way too low...take your pick.

[/quote]

I'm paying .24% of FMV and yes the market here is overdone....dang Californians movin in. :)

Chris, you and your client are foolish if you don’t take my advice.  Your first move needs to be talk to the creditors to see if you can negotiate the rate of the debts.  This can often be done and there is no down side to making the attempt.

[quote=anonymous]Chris, you and your client are foolish if you don't take my advice.  Your first move needs to be talk to the creditors to see if you can negotiate the rate of the debts.  This can often be done and there is no down side to making the attempt.[/quote]

How about just telling her to pay her f**king bills and come back when she has some money?

I think she needs to get a second job…

She could make $500-$1000 a night on stage.

"Financial advisors" are not psychologists--you have no insight into what makes this woman tick and assuming that she will replace paid off debt with new debt indicates that that is what you would do.

Yes, we are and we should have some insight into what makes this woman tick.  If you don't you will never be able to help her in her investing and financial planning needs.

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.

Chris:

I agree with Joe, Anon and others who said not to liquidate the IRA and she should pay the debt the old fashioned way.

Since she can't borrow from her retirement plan, She should see if she can get a consolidation loan from her bank or make an arrangement with the card companies.  Even a personal signature loan will be a lower interest rate than that she is paying on credit cards.  As a loan officer (which I was at one time) , I would also demand that letters be sent to the credit card company along with the check for pay off that request that the account be closed. 

I often would have my assistant type those letters and have the client sign at the same time as the loan documents.  Following this I would then subject my client to a stern lecture on self control and financial responsibility.  Sometimes it would sink in, but as others have said often the client was just back in debt again.

Destroying the 401k roll over from her husbands account without being sure that she can have some fiscal responsibility would just put her into a worse situation.   

Bobby may be right:  she needs a new husband.

A home financed at 100% LTV and interest only is indicative of someone who would have been better of as a renter and who obviously is one of those too stupid to help type of people.   

She needs to have her head examined to find out why she has had 3 husbands.  Is she picking the same crappy guy type each time? There must be something seriously wrong with her.  

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