[twdm]

Originally Posted by dark0821

quick question to the renters, just curious, when you do retire eventually, I assume you would've saved enough/invested over the years to live off for the rest of your life? Or are you planning to take a hit on your lifestyle to make things work?

I do come from a more traditional Asian background, where I been taught is that home ownership = security. And to my parents, investment = home ownership, if you are doing well, you buy a second property... you do even better?? A third one and so on... lol, because it will be hard for the housing market to crash? compared to other investment options... lol? (I know I am making a fool out of myself hahaha, I am really uneducated in this crap....)

I guess my heavily influenced mentality will be renting isn't exactly cheaper than a mortgage, more versatile/flexible for sure, but cheaper... not really.... so if you are going to have this expense anyways, might as well put it towards something... (as I see rent just money going down the drain sort to speak).

It doesn't matter if the mortgage is paid off before your retirement, you can choose to sell it when you do not have the income/means to pay for it anymore. And you will find you will get back most of your mortgage payments back at that time...

...where as if you were renting for that many years, you have nothing to show for it at the end of the "day"?

LOL... please teach me masters hahaha....

Well unfortunately if you have more in-depth knowledge of how finances work other than what mom and dad taught you, you'd understand the principles of risk vs reward and diversification.

Seriously, instead of just ridiculing different methods of achieving the same goal, first do a little research and try to understand why there isn't just one solution to a problem.

There are many reasons as why real estate should not be your sole investment (all eggs in one basket analogy).

Firstly, liquidity. When shit hits the fan and you need cash, how fast can you sell your house? In the stock market where there are billions of potential buyers and where volumes of individual stocks can be in hundreds of millions of shares per day, the bid/ask spread can be very low. In a housing market, the bid/ask spread is very high because there are low numbers of buyers and sellers for similar properties. The same would hold true for stocks with very low transaction volumes.

Secondly, risk. If you were a gambling man, and I said I would give you $1 million to keep on the condition that you have to bet every penny on the roulette table, the smart person would put an equal bet on every single number. The speculator would dump all 1 million on double zero. Ok, let's say that the speculator did a bit a research and double zero came out the past 15 rounds, if it hits double zero again he would attribute it to his investing acumen. However at the end of the day, it is pure speculation and in the long run, the person who spreads his bets equally would win out. I'm not saying real estate is a horrible investment. I'm just saying it should not be your only investment or take up a disproportionally large part of your investment portfolio. In addition, sometimes shit happens, your house burns down, companies go insolvent, this stuff happens all the time. You minimize your exposure to this risk by diversification.

Thirdly, leverage. The benefit of getting a mortgage is some average Joe with a $50k annual salary can borrow way more than what he makes and put that down as an investment. In this way, gains are multiplied but so are losses. Can I do that without a mortgage? Of course I can. I currently have 3x my annual salary in unsecured loans at rates even less than what you guys pay for mortgages. Can someone leverage at the same ratio as a mortgage? Probably not, but that is because the lender can foreclose your home if you default.

Fourthly, carrying costs. Always look at what it costs for you to rent and compare how much in annual interest/maintenance/taxes etc. A $500k mortgage at 2.7% for 5 years, you're looking at $13.5k (roughly) in interest alone. Now if you add in maintenance fees, taxes, etc you're throwing around $16k "down the drain". These are costs you don't have to bear as a renter. You're also looking at the lowest interest rate period we have seen for a long time. You have to plan for eventual rate hikes (if it doesn't happen, then you're lucky, but you still have to plan for it). When you need to sell, there are also selling costs which in a normal market would wipe out your gains. If you can rent the same place at roughly the same "down the drain" costs, then you'll come out even without the risk associated with home ownership.

Lastly, the insane Asian mentality that they have to own physical things to build wealth, or that housing cannot crash. There is a reason the wealthiest people in the world aren't real estate moguls. There is also a reason real estate moguls diversify into other sectors (eg. Li Ka Shing). Would you rather own Apple, Google or their equivalent value in housing or gold? All markets can crash if given that their values do not reflect their fundamentals for prolonged periods of time. All it takes is a trigger.
Someone who owns $1 mil in stocks is just as wealthy as someone who owns $1 mil in housing. In fact I would give preference to the stockholder due to the fact his holdings are more liquid and flexible whereas the homeowner literally can't do shit unless they take a line of credit on their home (thus incurring carrying costs), or in cases where their needs exceed their credit limits, sell their home.