When does having a million dollars not make you rich?

[Fawteen]

Originally Posted by ARCOgraphite
Originally Posted by Mr Nice
The problem is that many Americans think big debt equals net worth.

If another recession hits like we had in 2009 lots of over leveraged folks will be in big financial trouble if either spouse lose their job and family can't keep heads above water.

Will the housing market crash in the next 2-3 years ?



I have to admit I'm getting very antsy and been selling stocks and rebalancing my 401K.....

It's been a good 10 years and now it's time to take profits off the table.




When I heard the news yesterday, Oh boy!
I ran home around 2:30PM EST and did a quick
re-balance (again)
to get from 45% equities
down to below 20%

Just in case.

I may eventually loose some upside at this game but I sure am breathing a little easier.


If that's true, then you don't have a clue about how to handle long term investments. You'd be better off letting someone who has some financial acumen manage your investments. You're letting emotion guide your financial strategy rather than common sense.

And you'll "lose" your upside at this game, not "loose".

Originally Posted by fdcg27

The long term trend for houses in the 'burbs, much less the boonies, is probably not all that good. The population is aging and as people grow older, they sell their homes as they reach the point where they no longer wish to or are physically unable to care for their homes. They seek apartments and the average age of those in established higher-end rental buildings is surprisingly high. There is also a trend toward younger people seeking urban housing, either gorgeously redone old office buildings or new builds on tear-down sites. Many young people are either single or attached through marriage or merely partnership and plan no offspring. For such people, the fears of the social problems and lousy school systems of many older cities are of much less importance and there is a street level walkable vibrancy to urban living that you just don't get in the 'burbs, the mall being but a poor and synthetic substitute for this.
I think anyone banking on cashing out of an outsized house to partially fund their retirement may be making a fool's bet, although this does depend upon the time horizon anyone might be looking at.


That's a myopic viewpoint based on opinion only. I'd challenge you to provide proof of your assertion that long term trends for houses "in the burbs" is not all that good. You're doing nothing more than speculating with zero experience or facts to back up your assertions.

 

[Ws6]

Originally Posted by wings&wheels
Originally Posted by JeffKeryk
Regarding house prices, they are declining in Silicon Valley. But the better neighborhoods, of course, drop less.
I know of a recent sale, near the new Apple Spaceship, 1650 square feet, 3/2, small lot, 50 years old ranch style, remodeled reasonably, that I thought would go for close to $2M or perhaps more.
It sold in 2 days for $1.9M; there were multiple offers.
A Google Director and his wife (PWC Consultant) put $50K down and will make $7K monthly payments.
A year ago this was an easy $2.1M sale. Or more.

Sunnyvale, CA


Odd, if it sold in 2 days w/ multiple offers it sounds like it could/should have been priced higher. May have been some other factors driving the price and sale timeline.

Crazy money, but boy did we enjoy living in Palo Alto....

I have a friend living in Palo. Insane. He told me my house and half my land would be worth over $10m anywhere within a 30 min commute of Stanford. Insanity.

 

[4WD]

Surely having the university of grievance inflates the cost as well.

 

[JeffKeryk]

Originally Posted by Ws6
Originally Posted by wings&wheels
Originally Posted by JeffKeryk
Regarding house prices, they are declining in Silicon Valley. But the better neighborhoods, of course, drop less.
I know of a recent sale, near the new Apple Spaceship, 1650 square feet, 3/2, small lot, 50 years old ranch style, remodeled reasonably, that I thought would go for close to $2M or perhaps more.
It sold in 2 days for $1.9M; there were multiple offers.
A Google Director and his wife (PWC Consultant) put $50K down and will make $7K monthly payments.
A year ago this was an easy $2.1M sale. Or more.

Sunnyvale, CA


Odd, if it sold in 2 days w/ multiple offers it sounds like it could/should have been priced higher. May have been some other factors driving the price and sale timeline.

Crazy money, but boy did we enjoy living in Palo Alto....

I have a friend living in Palo. Insane. He told me my house and half my land would be worth over $10m anywhere within a 30 min commute of Stanford. Insanity.

Depends on whether you are buying or selling.
In the long term, it is probably a great investment.
Palo Alto is not the highest cost area in Silicon Valley, but it is the highest per square foot.

About 10 years ago a co-worker was going through divorce.
Afterwords Tanya bought a 2/1 tiny fixer upper on a street in PA for $700K.
Her neighbors were Steve Young and Steve Jobs.
She is now richer than ....

FYI, as a SQL dB administrator, she probably makes more than $150K with great benefits.
She has raised 3 great kids; Tanya is a real looker to boot.
Not bad work if you can get it.

 

[fdcg27]

Originally Posted by Fawteen
Originally Posted by ARCOgraphite
Originally Posted by Mr Nice
The problem is that many Americans think big debt equals net worth.

If another recession hits like we had in 2009 lots of over leveraged folks will be in big financial trouble if either spouse lose their job and family can't keep heads above water.

Will the housing market crash in the next 2-3 years ?



I have to admit I'm getting very antsy and been selling stocks and rebalancing my 401K.....

It's been a good 10 years and now it's time to take profits off the table.


When I heard the news yesterday, Oh boy!
I ran home around 2:30PM EST and did a quick
re-balance (again)
to get from 45% equities
down to below 20%

Just in case.

I may eventually loose some upside at this game but I sure am breathing a little easier.


If that's true, then you don't have a clue about how to handle long term investments. You'd be better off letting someone who has some financial acumen manage your investments. You're letting emotion guide your financial strategy rather than common sense.

And you'll "lose" your upside at this game, not "loose".

Originally Posted by fdcg27

The long term trend for houses in the 'burbs, much less the boonies, is probably not all that good. The population is aging and as people grow older, they sell their homes as they reach the point where they no longer wish to or are physically unable to care for their homes. They seek apartments and the average age of those in established higher-end rental buildings is surprisingly high. There is also a trend toward younger people seeking urban housing, either gorgeously redone old office buildings or new builds on tear-down sites. Many young people are either single or attached through marriage or merely partnership and plan no offspring. For such people, the fears of the social problems and lousy school systems of many older cities are of much less importance and there is a street level walkable vibrancy to urban living that you just don't get in the 'burbs, the mall being but a poor and synthetic substitute for this.
I think anyone banking on cashing out of an outsized house to partially fund their retirement may be making a fool's bet, although this does depend upon the time horizon anyone might be looking at.


That's a myopic viewpoint based on opinion only. I'd challenge you to provide proof of your assertion that long term trends for houses "in the burbs" is not all that good. You're doing nothing more than speculating with zero experience or facts to back up your assertions.


Yep, just like you and everyone else in this thread or with actual funds invested, I'm making an educated guess.
Were it not for current immigration levels, US population would be both aging and shrinking and that is simple fact.
At the end of the day, we all put our money where we think it'll gain the most over time while avoiding as much downside and liquidity risk as possible at any target rate of return.
This is known as an efficient frontier, where one can't reduce risk without reducing return while one also can't increase returns without increasing risk.
There're academic papers laying all of this out complete with math.
The problem is that looking forward always requires informed guesswork and sometimes we guess wrong.

 

[JeffKeryk]

"The problem is that looking forward always requires informed guesswork and sometimes we guess wrong."

Well said. And we all guess wrong, depending on timing.
I lost $$ on a house purchase/sale back in the early 1990's.
If I were in a different place in life it might have been catastrophic.
I guessed wrong...
If I would have kept that house, today it would be more than 5 times what I sold it for.
Guessed wrong again...

Going forward with the $1T deficit (and growing) and national debt, we may have all guessed wrong.

 

[ZZman]

Originally Posted by joekingcorvette
Its all about good health my friends. Without good health money won't do you much good.


So true. Not only in outrageous medical costs but the possibility of losing your job and the income loss and potential investments that could have been made in retirement accounts or investments that no longer could be made.

Many if not most are one tragedy away from severe financial problems.

 

[4WD]

Originally Posted by JeffKeryk
"The problem is that looking forward always requires informed guesswork and sometimes we guess wrong."

If I would have kept that house, today it would be more than 5 times what I sold it for.
Guessed wrong again...


Maybe this belonged in the boomer and gen whatever debate - but many of us bought our first home with very high interest rates in a flat home value market.
So certain ages did have it much better in terms of affordable loans.

 

[JHZR2]

I dont buy into the real estate sham. Sure, it's real, and if it's yours for primary and/or secondary residence, it's got a value, but it's tied up.

I consider a millionaire to be net worth without personal real estate. Rental units free and clear I'd count as they are producing a return notionally.

People could argue stocks are no different than real estate, and perhaps that's true, but why I don't consider real estate is because it is less liquid, has high recurring costs if it's only yours, and isn't returning any regular income, just appreciation based upon supply and demand.

So if you have a million dollars in cash, securities, and rental real estate, you're doing pretty good. Even in a high cost area, if you're sitting on a million dollars and have a paid for house and no debt, you're doing good.

The caveat to that is unless you live in a very low cost of living area, it won't return. A million dollars conservatively invested (so you don't have to worry about pulling from principal when markets drop) means you can probably consistently yield 3-4%. 4% on $1MM is $40k/yr. If you lived a spartan life in a low cost area maybe $40k/yr would work.

I'd argue most would be better served with at least double that income even in retirement.

So with $1M, you're not "set".

 

[JeffKeryk]

Originally Posted by JHZR2
I dont buy into the real estate sham. Sure, it's real, and if it's yours for primary and/or secondary residence, it's got a value, but it's tied up.
.

I very much disagree with this; here's why.
People need a place to live. You are either paying your mortgage or someone else's.
While you are not guaranteed to get a return, renting guarantees you will never see a penny of your rent payments.
In bad times, you can rent out a room. You can help family and friends if necessary.
If you need cash and have equity, a 2nd mortgage may be a good option.
At least with a fixed mortgage, you know what your payments will be; not so with renting.
You can leave it to your kids.

I 100% agree it should not be one's only investment, but over time it is hard to go wrong with real estate.
In my case, I drove used Hondas and Toyota PickUps while paying off my mortgage.
And I got the income tax break...
Now I have no house payment and can buy any car I want.

 

[xfactor9]

Originally Posted by JeffKeryk
Regarding house prices, they are declining in Silicon Valley. But the better neighborhoods, of course, drop less.
I know of a recent sale, near the new Apple Spaceship, 1650 square feet, 3/2, small lot, 50 years old ranch style, remodeled reasonably, that I thought would go for close to $2M or perhaps more.
It sold in 2 days for $1.9M; there were multiple offers.
A Google Director and his wife (PWC Consultant) put $50K down and will make $7K monthly payments.
A year ago this was an easy $2.1M sale. Or more.

Sunnyvale, CA


Hold up. You're saying that a bank gave them a 97.3% LTV loan? That's insane.

The numbers also don't add up. A $1.85M loan with PMI would have $9k to $10k in monthly payments not including RE taxes and insurance, far more than $7k.

In any case, if banks are lending 97% LTV, then there's a bubble brewing and they learned nothing from 2005.

 

[Garak]

Where I do agree with JHZR2's point is that property values, more accurately, their fluctuation, really don't matter as much as we think they do. If my house is worth half a million, and it's a modest house, I have to buy another half million dollar house ot replace it. If it's worth $10,000 and that's the going rate for a modest house, I'm still in the same boat.

Of course, for people who choose to or have to move frequently, particularly to significantly different areas, that throws a wrench into things.

 

[supton]

Originally Posted by xfactor9
Originally Posted by JeffKeryk
Regarding house prices, they are declining in Silicon Valley. But the better neighborhoods, of course, drop less.
I know of a recent sale, near the new Apple Spaceship, 1650 square feet, 3/2, small lot, 50 years old ranch style, remodeled reasonably, that I thought would go for close to $2M or perhaps more.
It sold in 2 days for $1.9M; there were multiple offers.
A Google Director and his wife (PWC Consultant) put $50K down and will make $7K monthly payments.
A year ago this was an easy $2.1M sale. Or more.

Sunnyvale, CA


Hold up. You're saying that a bank gave them a 97.3% LTV loan? That's insane.

The numbers also don't add up. A $1.85M loan with PMI would have $9k to $10k in monthly payments not including RE taxes and insurance, far more than $7k.

In any case, if banks are lending 97% LTV, then there's a bubble brewing and they learned nothing from 2005.


I'm not sure PMI used to be the evil it was--I was shocked at mine. 10% down and it was like $43 per month. Granted not a million dollar mortgage and with long credit history and not a first time buyer, but still.

I wonder if the bank was willing to "gamble" on this one. I mean, they know the numbers (usually) and in it to win it, regardless of the outcome. Well, last downturn excepted...

 

[JHZR2]

Originally Posted by JeffKeryk
Originally Posted by JHZR2
I dont buy into the real estate sham. Sure, it's real, and if it's yours for primary and/or secondary residence, it's got a value, but it's tied up.
.

I very much disagree with this; here's why.
People need a place to live. You are either paying your mortgage or someone else's.
While you are not guaranteed to get a return, renting guarantees you will never see a penny of your rent payments.
In bad times, you can rent out a room. You can help family and friends if necessary.
If you need cash and have equity, a 2nd mortgage may be a good option.
At least with a fixed mortgage, you know what your payments will be; not so with renting.
You can leave it to your kids.

I 100% agree it should not be one's only investment, but over time it is hard to go wrong with real estate.
In my case, I drove used Hondas and Toyota PickUps while paying off my mortgage.
And I got the income tax break...
Now I have no house payment and can buy any car I want.


I was about to take off on a flight, so wasn't really clear.

You're right that you have to live someplace, and before one gets hardcore into investing, they should own their home in almost all scenarios.

My issue is when the real estate industry says how your home is such a "great" investment. Generally, it isn't. It is more of a forced savings that may appreciate. And as such, it's inclusion in one being a "millionaire" to me is somewhat silly. Sure you could be a homeowner millionaire, but in places like dc or SF, you could also be dirt poor in terms of any other assets.

I did the calculation on my grandparents' house, in an affluent area with great schools and a very family-centric town. From 1961 until they sold, 45 years, their rate of return was 7.7%. Not bad, but it doesn't include property taxes ($12k or so per year when they sold), and any maintenance they ever did. So the real return was more like 4-5%, possibly lower, and they lived in a good places and sold into a good market. And I did that based upon the sale price of their home, mot accounting for the 6% that the realtor kept. Meanwhile, what was the inflation rate through the 70s? What could they have gotten during the high interest rates in the 80s?

Meanwhile, blue chip investments (which they also had), with reinvested dividends (which they also did), returned 9.8% in the same time (June ‘61 - June ‘16). No costs offsetting like recurring property taxes and maintenance. I get it that they pay capital gains taxes... but they wouldn't with the hundreds of $k they made on their house too.

And, with any blue chip, dividend paying stock, they could have stopped the DRIP, and taken ready cash, or sold just enough stock at any time to cover costs.

And I'm not saying that the stock market is the end all be all either... it isn't. It's just another option, amongst many.

If one owns rentals where all costs are paid for by other peoples' money, great. Owning a residence should be a given, not considered an investment. That's realtor sales speak to chase their 6% commissions.

 

[JeffKeryk]

Originally Posted by xfactor9
Originally Posted by JeffKeryk
Regarding house prices, they are declining in Silicon Valley. But the better neighborhoods, of course, drop less.
I know of a recent sale, near the new Apple Spaceship, 1650 square feet, 3/2, small lot, 50 years old ranch style, remodeled reasonably, that I thought would go for close to $2M or perhaps more.
It sold in 2 days for $1.9M; there were multiple offers.
A Google Director and his wife (PWC Consultant) put $50K down and will make $7K monthly payments.
A year ago this was an easy $2.1M sale. Or more.

Sunnyvale, CA


Hold up. You're saying that a bank gave them a 97.3% LTV loan? That's insane.

The numbers also don't add up. A $1.85M loan with PMI would have $9k to $10k in monthly payments not including RE taxes and insurance, far more than $7k.

In any case, if banks are lending 97% LTV, then there's a bubble brewing and they learned nothing from 2005.


Good catch!
I missed a zero. They put down almost half a million.
I know because I sold the house; my folks bought the house new in Dec 1969.
$50K down gets you into a mobile home or a small condo outside of Silicon Valley.

 

[JeffKeryk]

Originally Posted by JHZR2
Originally Posted by JeffKeryk
Originally Posted by JHZR2
I dont buy into the real estate sham. Sure, it's real, and if it's yours for primary and/or secondary residence, it's got a value, but it's tied up.
.

I very much disagree with this; here's why.
People need a place to live. You are either paying your mortgage or someone else's.
While you are not guaranteed to get a return, renting guarantees you will never see a penny of your rent payments.
In bad times, you can rent out a room. You can help family and friends if necessary.
If you need cash and have equity, a 2nd mortgage may be a good option.
At least with a fixed mortgage, you know what your payments will be; not so with renting.
You can leave it to your kids.

I 100% agree it should not be one's only investment, but over time it is hard to go wrong with real estate.
In my case, I drove used Hondas and Toyota PickUps while paying off my mortgage.
And I got the income tax break...
Now I have no house payment and can buy any car I want.


I was about to take off on a flight, so wasn't really clear.

You're right that you have to live someplace, and before one gets hardcore into investing, they should own their home in almost all scenarios.

My issue is when the real estate industry says how your home is such a "great" investment. Generally, it isn't. It is more of a forced savings that may appreciate. And as such, it's inclusion in one being a "millionaire" to me is somewhat silly. Sure you could be a homeowner millionaire, but in places like dc or SF, you could also be dirt poor in terms of any other assets.

I did the calculation on my grandparents' house, in an affluent area with great schools and a very family-centric town. From 1961 until they sold, 45 years, their rate of return was 7.7%. Not bad, but it doesn't include property taxes ($12k or so per year when they sold), and any maintenance they ever did. So the real return was more like 4-5%, possibly lower, and they lived in a good places and sold into a good market. And I did that based upon the sale price of their home, mot accounting for the 6% that the realtor kept. Meanwhile, what was the inflation rate through the 70s? What could they have gotten during the high interest rates in the 80s?

Meanwhile, blue chip investments (which they also had), with reinvested dividends (which they also did), returned 9.8% in the same time (June ‘61 - June ‘16). No costs offsetting like recurring property taxes and maintenance. I get it that they pay capital gains taxes... but they wouldn't with the hundreds of $k they made on their house too.

And, with any blue chip, dividend paying stock, they could have stopped the DRIP, and taken ready cash, or sold just enough stock at any time to cover costs.

And I'm not saying that the stock market is the end all be all either... it isn't. It's just another option, amongst many.

If one owns rentals where all costs are paid for by other peoples' money, great. Owning a residence should be a given, not considered an investment. That's realtor sales speak to chase their 6% commissions.


Your calcs ignore the cost of renting, if they didn't own. And no payments if they paid off the mortgage.
Yes, there is upkeep, taxes, etc. Renters pay that buried in their rent. Rent fluctuates, usually up. At the end, renters have nothing.

I totally agree diversification is key.
Also, I live in an extraordinary location; far different than anywhere in the world.
Silicon Valley is the land of opportunity.
Real estate here is an incredible investment.
Also, to your point, stock options and stock market growth pay for these expensive properties.

I guess I don't follow how home equity does not count in wealth.
A typical homeowner here could sell and move to the great state of Texas and use their equity to pay cash for a beautiful home.

 

[JeffKeryk]

Originally Posted by Garak
Where I do agree with JHZR2's point is that property values, more accurately, their fluctuation, really don't matter as much as we think they do. If my house is worth half a million, and it's a modest house, I have to buy another half million dollar house ot replace it. If it's worth $10,000 and that's the going rate for a modest house, I'm still in the same boat.

Of course, for people who choose to or have to move frequently, particularly to significantly different areas, that throws a wrench into things.

Yes, but you can take that $500K (more accurately whatever your equity is) and move to an area with a comparable (or better) home that costs half that.
So perhaps you just need to change boats...
Beats the snot outta renting.

 

[parshisa]

that is absolutely amazing how different north america (us in particular) compared to the rest of the world...

 

[gfh77665]

Originally Posted by Rmay635703

US Population growth is expected to go negative within the next decade, this won't bode well for property prices


The one source you quoted was an outlier. The US population will increase, although at a lower rate than the past 10-20 years. The UN projects the USA will be at 356 M by 2030. Today its at 329 M. Next 11 years will add 27 M more. Many other sources concur.

Housing prices will not fall off a cliff.

 

[Mr Nice]

Quote
[/quote]
And I'm not saying that the stock market is the end all be all either... it isn't. It's just another option, amongst many.

If one owns rentals where all costs are paid for by other peoples' money, great. Owning a residence should be a given, not considered an investment. That's realtor sales speak to chase their 6% commissions.

I know I guy with a legitimate $6M net worth and he says there is zero possibility he would ever own rental properties.

People on TV make it sound it's so easy to buy rentals and become rich with little trouble.