We’re back…… Using home equity as ATM’s!!!!

[Coronita]

[quote=CA renter]flu,

Who, exactly, is recommending “sitting on your ass” or “doing nothing”? Even some of the most bearish Piggs (including myself) have bought in the past few years, and many of us actively manage our own money. Most of the bears on the Housing Bubble Blog (some would argue they’re some of the most bearish folks on the internet) have bought, too!

BTW, the people I’m talking about (and I’m sure ER’s examples, too) are nowhere near dumb. Some of them are exceptionally intelligent and have had significant success in life, often multiple successes. That’s what makes it so scary — these ARE the smart ones, and they fail in a big way. It’s humbling because you realize how vulnerable we ALL are, no matter how smart or rich or well set-up in life.

Nobody’s saying you should do nothing, but to ignore the potential for fairly dramatic economic shifts would be foolish. Using leverage for asset purchases in the hopes that someone else will leverage even more so that they can pay you a higher price for these assets in the future is very risky, especially when everybody else is doing it at the same time. With money so cheap/interest rates so low, there is a much greater chance of things going sideways. And then, there are the demographic issues to contend with. I think that a lot of people don’t really understand how risky it really is.[/quote]

Well let’s see CAR…Let’s see how a kid’s attitude if they took your advice literally….

1. Don’t ever buy a house as an investment.
2. Don’t invest in the stock market/bond market, because it’s all gambling.
3. Don’t go to college, or if you do go, don’t major in anything technical, because we’ll all be replaced by robots or outsourced.
4. Don’t speculate and take risks on opportunity

Seems to me the only thing left for a said kid with your viewpoint would be to work for the government and hope for a guarantee.. If that’s the sort of mentality you think would be productive, have fun… It exactly the sorry ass, victim mentality that I would not want to have any part of.

[earlyretirement]

[quote=flu]

Well let’s see CAR…Let’s see how a kid’s attitude if they took your advice literally….

1. Don’t ever buy a house as an investment.
2. Don’t invest in the stock market/bond market, because it’s all gambling.
3. Don’t go to college, or if you do go, don’t major in anything technical, because we’ll all be replaced by robots or outsourced.
4. Don’t speculate and take risks on opportunity

[/quote]

I can’t speak for CAR but on your points, I’d counter with these thoughts speaking for myself.

1. It’s one thing to buy a home. And also another thing to buy investments properties if you can comfortably afford them. Nothing wrong with either as long as you can COMFORTABLY manage the payments under a worst case scenario situation.

Worst case scenarios including possibly losing your stable job, someone in your immediate family having a medical problem, being in a prolonged bad economy where rentals can be affected on investment properties, etc.

Personally I’ve always believed in real estate as a LONG TERM investment and excellent for cash flow. In fact, it’s how I built up much of my net worth via cash flow from paid off real estate.

I think the thing you just have to be careful is “biting off more than you can chew”. I’ve met several people here in San Diego that bit off more than they could “chew” and either lost home(s) because they just leveraged too much.

One of my wife’s friend always says things like, “oh I remember when I was rich and had a big house, and had a maid, and had a Mercedes SUV, etc. etc.”. Her and her husband were obviously leveraged to the hilt. They not only lost their home here in San Diego but they also lost a home they bought/leveraged in Las Vegas. I always feel like telling her that she was never “rich”. It was all false….

2. I’m not sure I read anywhere where someone was saying it’s foolish to invest in the stock market. But it’s one thing to “invest” and another thing to “trade”. It’s two totally different things that are best not confused. Timed/planned/steady investments over a long period of time in a diversified portfolio is one thing but day trading is another.

And I’m not even saying that there is anything wrong with “trading”. My only point is that trading on margin can be treacherous with too much leverage. Also, it’s one thing to be investing in a diversified portfolio that isn’t too risky but there are lots of guys out there that are chasing a small basket of volatile stocks. That isn’t “investing” either.

Also, investing and even some leverage might make sense but I see lots of day traders with their 4 X buying power and their margin accounts that really get killed with sudden swings in the market and margin calls. What they are doing is NOT “investing”.

Also, it DOES make sense to protect your positions through responsible use of call and put options. However, lots of people just basically gamble with options. Again, I’d say you have to separate the two.

Also, it’s one thing to invest with YOUR money but quite another when you’re “investing” with leveraged money. For example, I recently met a guy that was telling me that he was taking these 0% credit card balance transfer check offers and depositing it into his investment/margin account! He said that he had very high credit limits and was paying 3% to deposit it into his account and then he was using this money and trading/investing.

Because money market and CD’s are paying almost nothing, he had invested all his cash in the stock market but that wasn’t even enough so he said he took $100,000+ in these credit card balance transfer offers. Sure, things might be rolling ok for him now in an up market. But in a down market you can get crushed easily.

Man, I told him how that is dangerous and I’d advise against it. But guys like this just think that this is “found money” and idiot proof. I just shook my head listening to that guy. He thought he was the smartest guy doing this… I don’t consider this “investing”. The truly scary thing to me is after that story I wondered how many people out there are doing things like this? I’d have to imagine if there are guys like this out there, then there are guys taking HELOC’s doing the same type of thing!

3. I’m in the camp that still says you most likely will need to have a college degree in a good major from a respectable University to get a good high paying job these days. Sure there are exceptions to the rule but I don’t see this changing in the near future.

Back when I graduated, it was still possible to have an almost “worthless” degree like Religion, History, Communications, Art and still get a decent job. But more and more that is not the case.

I still say that a college degree if you’re going into a field that isn’t totally worthless in today’s job market is still almost a necessity. And I do find the cost of a college degree is insane these days. But I still say it’s almost a necessity. I’m one of those students who graduated with six figure student loan debts (I totally put myself through college).

The truth is I could have NEVER gotten where I did in life if I didn’t spend all that money on a college degree. I wouldn’t have gotten the job I got or made the income that I made.

4. Personally I think it DOES make sense to speculate and especially take a risk on opportunity IF it’s within reason and IF you have a very good plan. It’s one thing to just gamble but it’s another to carefully put together a solid business plan or life plan based on that speculation opportunity.

As we discussed above, calculated risk/speculation is different than blind risk/speculation.

From my experience,some of the most successful and wealthy people I’ve met are people that DID take advantage of calculated risk/opportunities. But most of them put together very solid business plans. Everything was very well thought out. And even with those opportunities they either self-financed the opportunity or they got loans from family/friends. Not like using their credit cards like I hear some people do.

I think in life you do need to take advantage of various opportunities when they become available.

I truly believe that in most cases to be able to retire earlier in life you needed to have most of these things:

– Worked VERY hard in life.
– Been intelligent and made good investment decisions
– Either made a limited amount of financial mistakes or they quickly learned from those mistakes and didn’t repeat it
– Had some luck on their side
– Had good timing on their side be it in a particular investment, working for an employer that still offered great pension plans, or other element of “good timing”.
– Capitalized on a good opportunity where they took calculated risks
– Was careful with leverage ratios and never put themselves in a situation where they could “lose it all” with any particular investment
– Fairly well diversified

There are many others but I think most people have at least had these elements as a recipe for a possible earlier retirement in life. Obviously I didn’t list those that inherited money, had trust funds or won the lottery. That’s just good luck!

[an]

ER, what you fail to see is the fact that you’re born here in the US already mean you already won a pretty large vagina lottery. So, your argument only apply if you got that good luck. Some people were not born with that silver spoon fed in their mouth. I know many who risk it ALL. When I say ALL, I mean their lives, not just money. Money can be made back. I know many who died trying. Literally dying, and not just lost their money. I also know many who are now millionaires because they took those risk. So, yeah, sometimes, you have to risk it all. I also know those who didn’t take the risk and now are stuck in an environment where there’s very little upside financially.

[earlyretirement]

[quote=AN]ER, what you fail to see is the fact that you’re born here in the US already mean you already won a pretty large vagina lottery. So, your argument only apply if you got that good luck. Some people were not born with that silver spoon fed in their mouth. I know many who risk it ALL. When I say ALL, I mean their lives, not just money. Money can be made back. I know many who died trying. Literally dying, and not just lost their money. I also know many who are now millionaires because they took those risk. So, yeah, sometimes, you have to risk it all. I also know those who didn’t take the risk and now are stuck in an environment where there’s very little upside financially.[/quote]

AN,

I don’t fail to see that at all. I’ve always argued how WONDERFUL the USA is. It’s truly the best country in the world and I always feel fortunate I was born here. I do agree with you that anyone born in the USA is truly fortunate.

I don’t agree with you however that just merely that being born in the USA means you were “born with a silver spoon in your mouth”. I understand what it is like to have family that emigrated to the USA. So you can’t assume that people are just born with silver spoons in their mouths or had it super easy.

Still, I don’t think you can go through life with the attitude that people you know “risked it all” to come to the USA so it’s ok to justify taking all kinds of high risks and it’s all relative. (I’m not speaking about you..I’m speaking in general).

I’ve lived abroad for many years as well as traveling around the world quite a bit and I’ll always argue with anyone how wonderful the USA is and how fortunate we are here. However, in what we’re discussing above…. I’ll still argue for people not to take on irresponsible leverage and risks.

Yes, you can say people risk their lives coming to the USA for a better life and the risks some people take are nothing in comparison to that… however I’d say that is going way off topic and comparing apples to oranges..

My parents didn’t risk their lives coming to the USA on a boat. However, if they did, I think I’d have worked even harder and been even more aware of taking undo financial risks in life. That’s just me. I know others would do it differently and that’s ok as well.

[flyer]

ER–Again, some excellent points, and I also agree with you regarding your points concerning education.

Many of my college friends, knowing/hoping they would become pilots with a major airline ( only 5% at any given time are actually hired) took “easy” majors.

Even though that was the only profession I was interested in, I still wanted a degree in aerospace/aeronautical engineering, and it has served me well with regard to consulting projects over the past several years.

Especially now, with the fierce global competition, it seems that young people preparing for, and entering college would be well served to be extremely discriminating about choosing their college majors–especially when the stats reveal over 50% of grads today are, essentially, “unemployable.”

Concerning all of the diverse viewpoints here concerning risk and reward. The final answers most likely lie with each individual to determine how they want to “play” with their lives.

Others can offer opinions, as many here have, but, in the end, each of us is completely responsible for our own decisions–and we will be forced to live with the outcome of those decisions–good or bad–like it or not.

[earlyretirement]

[quote=flyer]
Concerning all of the diverse viewpoints here concerning risk and reward. The final answers most likely lie with each individual to determine how they want to “play” with their lives.

Others can offer opinions, as many here have, but, in the end, each of us is completely responsible for our own decisions–and we will be forced to live with the outcome of those decisions–good or bad–like it or not.[/quote]

Oh absolutely flyer. We all have different opinions on risk/reward. I’m not even saying anyone is right or wrong. Everyone is just expressing their personal feelings and opinions on it which is what these message boards are all about.

I’ve found these message boards can be really educational just reading other people’s experiences and thought processes.

It seems like there are some strong personalities on this board and that’s ok as well. Just from reading this board, there are some really intellectual posts (and not… LOL j/k)… Seems to be a great site with many people that have been posting for years which is always a good sign.

[an]

ER, again, you fail to see that swinging for the fences does not equal not taking the calculated risk and not swinging for the fences equal taking calculated risk.

There are people who I know who swung for the fences and put their lives at risk. The know that if they don’t, their children and children’s children will be in much worse situation and they’re willing to risk their lives to give their children the opportunity they know their kids won’t have if they don’t take that risk. For some, it paid off in spades while others died trying.

Then there are people I know who put down 20%+ down to buy a house in 2005. Their income can support the payment. So, they’re not taking that much of a risk. But they failed to see the biggest bubble right in front of their face.

I never said you should throw all caution to the wind and just swing for the fences for the sake of hitting it big without proper risk management. I hope you can see that taking risk and calculating that risk are not mutually exclusive.

WRT to the silver spoon comment, that might be a little hyperbolic (just a little) but unless you’ve lose families due to political unrest and lived through it, you really don’t know how good you have it here. Even the poorest person here is much better off than the average person in the country I came from. The silver spoon statement is basically regarding the endless opportunity that an American have at their disposal if they just try. The kind of opportunity that many have and are willing to die for. So yes, in a way, it is like a silver spoon.

[CA renter]

[quote=flu]

Well let’s see CAR…Let’s see how a kid’s attitude if they took your advice literally….

1. Don’t ever buy a house as an investment.
2. Don’t invest in the stock market/bond market, because it’s all gambling.
3. Don’t go to college, or if you do go, don’t major in anything technical, because we’ll all be replaced by robots or outsourced.
4. Don’t speculate and take risks on opportunity

Seems to me the only thing left for a said kid with your viewpoint would be to work for the government and hope for a guarantee.. If that’s the sort of mentality you think would be productive, have fun… It exactly the sorry ass, victim mentality that I would not want to have any part of.[/quote]

1. I never said don’t buy a house as an investment. My family was heavily invested in real estate, and Mr. CAR and I have made multiple offers on rentals over the past few years, but we won’t overbid or accept a low rate of return just because that’s the best thing around (for now) when the Fed is keeping rates at these low levels.

I do have a problem with everyone wanting to become a landlord because I think that everyone should have the opportunity to own their own home — it’s better for neighborhoods, and better for their retirements. IMHO, investors should not have access to low-interest, government-subsidized/guaranteed loans, nor should they reap the benefits of things like Prop 13 (and we stand to benefit greatly from it, so have no problem advocating for a position that hurts us if it’s the right thing to do). That’s a personal issue that stems from my socio-political beliefs, it doesn’t mean that rentals are bad investments.

2. Never said people shouldn’t invest in stocks or bonds. I’ve been heavily invested in both over the years. As with #1, I think that there is a difference between “productive” investing and speculation. Buying and selling existing assets isn’t productive, but investing in small businesses, making direct loans to businesses, etc. is productive. Again, that’s just a personal opinion, but I’ve never said that people should not invest in stocks or bonds.

3. Never said people shouldn’t go to college or major in technical degrees. My whole family went to college, and my father and FIL were both professors. I did say that people should avoid student loans whenever possible, and that they should seriously consider the JC->state university->grad school route in order to save a significant amount of money. Yes, we all need to seriously think about what it is we/our kids want from a college degree, and we have to weigh the costs and benefits of various degrees.

4. I’m all for taking calculated and intelligent risks (that’s how all my personal money was made), but too many people think this means that they should gamble with leverage. Sure, sometimes one can mint money, but most of the time, it will end in disaster. And when this gambling means that everyone else will have to pay for it down the road, then I have a much bigger problem with it. Yes, that includes the gambling done by pension funds.

[an]

CAR, reading your post, it sounds a lot like, do as I say and not as I do. You think you know what’s the appropriate level of risk is and anyone who takes more risk are throwing all caution to the wind and when the fail, it’s all their fault. While you attribute your success from taking risk to your know how and your own calculation. It sounds awfully like you know what’s best and your path is ideal for everyone.

[CA renter]

AN, that’s not what I mean at all. We’re all just sharing opinions here. Whenever I make a financial decision, I tend to spend an incredible amount of time researching it beforehand, and I don’t use leverage. While this has certainly caused me to miss some run-ups, it has also prevented me from having large losses. People are free to do whatever they want with their money, but they should not expect everyone else to have to pay for their losses when they fail (again, yes, that includes pension funds).

[flyer]

AN

You make some excellent points, and, from what you’ve shared, agree that many take all that we’ve been given simply by birthright for granted. Being born in this Country is a gift, and, hopefully, more of us will realize that.

I am extremely aware of that fact, because several generations of my family fought to secure the freedom all of us enjoy today. My Dad was an Admiral who made some very key decisions during one of the greatest conflicts in which this nation has ever been involved.

You should be very proud of what you have accomplished, and the life you are trying to provide for your family.

Hopefully, whatever risks you choose to take will be well rewarded.

[an]

CAR, I totally agree no one should expect everyone else to have to pay for their losses. I also like to extend that to those who don’t take risk and are sucking on the government tits.

Yes, we all are sharing our opinion. I wasn’t debating on whether your opinion on your own risk tolerance and desire were adequate or not. I was debating on your constant rail on those who took more risks than you and draw with a very broad stroke by say those who do have/will fail or that they throw all caution to the wind and swing for the fences.

However, you often fail to see that you yourself were given a silver spoon. Not only where your parents were very educated, but they took advantage of the RE market and inflation, that allow you to make financial decision with no leverage. Not all of us were given that silver spoon. Tell me, do you think you could make those same decisions and be where you are today, if your reading/writing are at a 6th grade level? Let me tell you another story about someone who swing for the fences and succeed. I know a couple who came to America about 30 years ago. They weren’t educated in their home country. They came here and to this day, their reading/writing level is probably no better than a 6th grader. They took ESL when they came to learn the basic. Then they started to work for a company. Then soon after, they started their serial small business venture. Every venture was a swing for the fence because they can’t afford to fail. Today, they have well over $1M in RE investment (free and clear) along with a decently successful business. Many business before this one failed. But that didn’t stop them. If they were to follow your advice, they probably are home collecting welfare. So, yes, often times, when you’re not born with a silver spoon in your mouth, you have to swing for the fences to get yourself out of the social economic condition you’re placed in.

[an]

[quote=flyer]AN

You make some excellent points, and, from what you’ve shared, agree that many take all that we’ve been given simply by birthright for granted. Being born in this Country is a gift, and, hopefully, more of us will realize that.

I am extremely aware of that fact, because several generations of my family fought to secure the freedom all of us enjoy today. My Dad was an Admiral who made some very key decisions during one of the greatest conflicts in which this nation has ever been involved.

You should be very proud of what you have accomplished, and the life you are trying to provide for your family.

Hopefully, whatever risks you choose to take will be well rewarded.[/quote]Unfortunately, I don’t have high hope that more American will realize the gifts they were given, just by the mere fact of being born in this country and the kind of opportunity that exists here that isn’t available in most other countries.

I’m glad you’re aware of what were given to you by the mere fact of being born here. I’m also thankful for people like your dad who made this country the way it is.

I’m very humble by what I’ve accomplished so far, which is far less than many others. But I will continue to try. I just get a little riled up sometimes when people, who often were born with a “silver spoon” to a certain extent, marginalize their gifts and think other are able to achieve their level of success by doing it the way they did. I just like to point out with examples where sometimes, some of us have no choice but to swing for the fences, else we wouldn’t be anywhere close to where we are today. Some will fail while swinging for the fence, but we won’t stop swinging just because we fail, once, twice, three times.

[CA renter]

Totally agree about your family from another country, AN. Both of my parents were VERY poor growing up (immigrant from war-torn country on one side and Great Depression farmer on the other), but the “risks” they took weren’t nearly as great as what I see people taking today. Part of that is the shift in the United States’ position in the world. Things are different today, and people are being forced to take on more risk than people of 40+ years ago.

There is also a big difference between those who have nothing to lose, like people from developing countries with oppressive regimes trying to escape to the U.S., and those who could have a fairly decent life, but double-down just to make a quick buck. When one has nothing to lose, the benefits of that risk far outweigh the costs; but for those who have a lot to lose, the benefits are relatively small compared to the risks they are taking. These are two very different situations, and I’m willing to bet that the immigrants from developing countries are NOT taking on the kind of leverage as those who are native to the U.S., and who’ve grown up in middle-class (or better) families. Not all risks are the same.

Not for a single second have I failed to give credit for my good fortune to the “ovarian lottery,” as you call it. Both Mr. CAR and I are total winners, and we acknowledge it every single day. This is exactly why I’ve made the point about “luck” in all those other threads, and why I think that those of us who’ve been blessed with all of this luck have a duty to those who have not been so fortunate. It’s precisely this role of luck that makes me a “left-leaning socialist.” Very few people are successful simply because of their hard work or intelligence (in which luck also plays a very large role). Ninety percent of what we are could probably be attributed to luck, both good and bad.

[an]

Sorry CAR, but loosing your life is 1000000X more to lose than even a $1M. Losing a $1M can be gained back but once you lose your life, that’s it. No second chances. So, they’re not even on the same level when we’re talking about risk.

You say you attribute 90% of your success on luck, yet, you don’t seem to attribute 90% of those who took the risk and fail on bad luck. Why is that? Why is your success is 90% good luck and someone else’s failure is not 90% bad luck?

Again, I don’t like to paint with a broad stroke and I don’t know enough about people’s finances and their risk taking to judge them when they fail. You might be OK with judging them for their failures, but I think often times, there are more information that I don’t know about, so I rather not judge. Everyone has the freedom to take whatever risk they feel is appropriate for them. Some will succeed and some will fail, even at the example same risk tolerance level. So, I’m not going to sit here and say, my risk level is just right and those who take more risk than me are just foolish and deserve their failure.

[Author]

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