[Raybyrnes]

In response to Cowboys example of the car sales person not mentioning how much the car with interest payments add up too He simultaneouly did not mention the opportunity cost of capital you have when you are able to put the same money to work for yourself.

If I pay 6% on a loan but I earn 10% on my investments then the car cost less. If I lose 10% the car costs more. To try and simplify the matter to adding the payments and subtracting the cost could be a pretty costly mistake.

[Raybyrnes]

I can appreciate that this system works for you and if it works that’s great but I am definitely in a differnt camp when it comes to debt. The way I see it I have to work a full year to make 100K and out of that I am left with 60K when you factor in taxes. Give me a 100K loan and not only do I have the time premium fof that money but the lender is going to charge 7%. That’s a bargain.
I find that I have a very disciplined approach to spending so regardless of when I am making a lot of money or if things slow down my purchasing habits do not change. This means I can put 20K on an American Express Blue card and simultaneously put that money in an interest bearing checking account.
How many times have you heard the argument that if I hd his type of money I would be rich too yet when a lender is willing to step up to plate and give it to you non borrowers thankfully decline.
I am constantly in tune with opportunity and when the cost of the opportunity is less than the cost of borrowing I am going to borrow.
I can appreciate that many people have a hard tiem being disciplines and if you do than using a cash basis sytem can be very effective at curtailing tthose impulse decision but it is not the most efficient way of managing your finances. A better attribute to focus on might be the inability to control your inclinations to purchase. Once this is in check than you can borrow more freely. In essense borowing can be viewed as a risk management tool.

[Raybyrnes]

If you are so convinced of the downturn why would you not just go short or start buying puts as a hedge against this supposed downturn.

I ahve been accumulating the likes of SPI and PCU. Both high diveidend paying stocks. Very comparable to rental analoiges. As soon as the stock begin to trade sownward people eye the yield and prop it back up. Very nice equilibrium to this type of investing.

[Raybyrnes]

You might read my passage more clearly and see that taxes are only one factor to consider. A more careful examination of nborrowing focuses on the opportunity cost of capital. The tax write off simply creates a greater margin of safety. If you believe that not having payment is so great I encourage you to go buy a powerplant so that you don’t have to worry about your electric biis. or a ca ble network to avoid the canble bills, while your at it you might consider buying farms for food so you don’t ahve that sneaking up on you.

Regardless of how you cut it we hvae bills to pay on a monthly basis. The fact that you can borrow money on the cheap at a fixed rate is an incredible financial tool if you know how to use it. I recently traveled to Brazil where home loan rates are 50%. Credit cards are 100% and a good deal on a car is 35%. Let’s face it the Bnaking system in the US is a fairly incredible system and for those who are smart creates an incredible avenue to crete wealth.

With respect to my father he sleeps well at night knowing that a federal pension is going to provide 7000 a month until the day he dies and half of that u ntil my mom dies so a couple graand a month is not something he had to worry about.

[Raybyrnes]

Once again, I respectfully disagree with your analysis. There have been periods of time far worse than now when naysayers like you have come out and said the sky is falling. Let’s see, WW1, WW2, Vietnam, Black Monday, 9/11. If one takes a look at any 10 year period of time the probabilty of losing is next to 0. If on the other hand one elected to solely stay in a cash position you can guarantee the deteriation of your money due to inflation. Perhaps a more insightful hedge might be to take 250 K and rather than making investment over a month one might choose to take a positon of investing over a 3 year period. That could eliminate some of the noise of market timing. Hopefully we can agree to disagree

[Raybyrnes]

I hear this argument about extending the term of revolving debt but I believe you need to provide context to your argument. First, if a borrower can invest the difference between their current payments vs. the extended loan that helps to negate interest cost. Second, you have the obvious tax deduction. Third, there ar generally no prepayment penalties so there is nothing stopping an individual from paying their debt off in a shorter period of time.

My Father currently owns his home cash and has a federal pension. When he recently asked for ways he might improve his ROI I suggested looking into pulling out 250K from his home on a 15 Year fixed at 5%.The home is worth about 500K and he currently has another 750K in diversified assets. Over a 15 Year time horizen I am fairly confident that the Stock Market will easily beat the net after tax of the loan. There are lots of military officers in the San Diego area who share this same profile. There pensions are garanteed and have steady cash flow, Add a working spouse or a second job and these individuals can afford to take on some risk.

[Raybyrnes]

Would the fact that ther are no rentals available suggest that there iw an inefficient rental market and that sellers are underpricing ther home rental values? This might suggest that long term rental propeties are at the beginning of price appreciation. If rental units begin to go up we begin to see some equilibrium when compared to long to valuation in ownership.Any feelings on this. Would it shock anyone to see renets going up. I ahve rented for over 4 rears and have not seen a rent increase. If they charged me 300$ more per month I would still be comfortable with the price.

[Raybyrnes]

Would the fact that ther are no rentals available suggest that there iw an inefficient rental market and that sellers are underpricing ther home rental values? This might suggest that long term rental propeties are at the beginning of price appreciation. If rental units begin to go up we begin to see some equilibrium when compared to long to valuation in ownership.Any feelings on this. Would it shock anyone to see renets going up. I ahve rented for over 4 rears and have not seen a rent increase. If they charged me 300$ more per month I owuld still be comfortable with the price.

[Raybyrnes]

I am surprised by this broad generalization that if you are planning to live in a place less than 5 years you should rent. I might have become accostomed to the people on this forum focusing on running the numbers and making an educated decison based on a combination of quantitative and qualitative factors. This type confirmation bias limits your ability to process all the data available. It is like saying you ar always better to buy term life than whole life or to pay cash for a car rather than finance or lease. In all circumstances each decision might vary based on that particular buyers needs and each decision might equally maximize the value of the transaction.

[Raybyrnes]

With Your incomes you might very well qualify under the affordable housing guidelines. Builders have had to set aside 15% of new units or pay fees. Many pay the fees but there are opportunities out there in some of the most desirables areas. I would have never imagined that a family with close to 100K of income could qualify for affordable housing but they do. This is not to say there are not some strings attached but often times you will own for less then you rent and will have the tax deduction aswell. I had an opportunity at 950 square feet in Carmel Valley that would have cost me about $1400 a month to own with 5% down. This includes insurance taxes and HOA. The seller Flaked out at the last minute. I’ll wait for the next deal to present itself.

[Raybyrnes]

USE Credit Union is paying 7% for a 7 Month CD. Limit of $2500 so you might want to open multiple accounts. You could have had a 6% CD if you elected to open an 18 month acccoutn with minimum of $5000. Believe they ahve reduced this to 5.75% at the moment.

[Raybyrnes]

You could have put 30K in an I bond and it was paying 6.71% Tax free

[Raybyrnes]

We are not buying these items with cash but rather credit. Whether it is a Credit Card, Home equity line etc we are using debt to pay for our goods. While you suggest that the high cost of gas is curbing our spending people continue stretch to send their children to colleges that cost 45K. These are not kids with ambitions of becoming investment bankers or Mckinsey Consultants. And these same parents complain about interest rates going up without realizing that when rates went down the cost of going to college went up at 12% a year.

I believe your frustration comes from the fact that there is a general lack of knowledge about how finance and the economy work. That starts in our school systems.

[Raybyrnes]

It’s not tactful but you said the guy was successful. You might not like the style but maybe he is worth his asking price and would have been able to get a much better price.

Simple economics tell you that people work on economic incentives. The less incentive there is to sell the less motivated to go out of your way to get the highest asking price. Lots of people can be order takers. Sales people work for a living, in good times and in bad. The ones that survive are usually fairly good at what they do.

Check out the book Freakonomics.

[Raybyrnes]

It’s not tactful but you said the guy was successful. You might not like the style but maybe he is worth his asking price and would have been able to get a much better price.

Simple economics tell you that people work on economic incentives. The less incentive there is to sell the less motivated to go out of your way to get the highest asking price. Lots of people can be order takers. Sales people work for a living, in good times and in bad. The ones that survive are usually fairly good at what they do.

Check out the book Freakonomics.

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