Paying cash for a house

[Mikenhe]

I highly doubt he said anything like that ("you dont understand life) at the age of 5. I smell BS. ?

 

OT: No real relevant personal experience but my general belief is that people overweigh the risks of renting and underweigh the risks in "owning" RE. There is also tremendous social pressure towards owning a house, in part because it's such a highly visible status symbol. Personally I'm not a fan but we're also not planning to have any kids for example. I believe those preferences will reduce stress levels enough so that I can focus on things like entrepreneurship and investing.

 

I too doubt that quote at 5 years old - but  I like it!!

 

Own vs rent is always down to a lot of differing factors. One of the main ones for us is that the Kids are settled at the current school district. By owning I know they can carry on going there until they leave high school. Thats 7 years for the youngest. Now seven years rent doesn't cover the cost of the house but the margin is low enough for it to make financial sense for us. Definately not a social status - more of having roots for the kids. And after renting and having the  house foreclosed on we decided we didn't want to be at the mercy of a landlord or a bank. None of that applies if you don't have kids and want the flexability of moving  - or having a stable landlord (maybe I should have done a credit check on him!!).

Also having low outgoings so that we have the option of doing what work we want instead of what we need to do is appealing.

In seven years time things change - no need for the school district so we aren't tied to the house. Maybe we sell it, or rent it or even stay there. Its nice to have the ball back in my court..

[Ross812]

Buying real estate with a mortgage makes a lot of sense in the US. Borrow for 15 to 30 years at 2.7-4.5% and write off the interest which lowers your effective rate to 1.7-3.5%?  If you get in trouble, you can negotiate with the bank to take part of the loss on your behalf. (Not that I endorse this).

 

If you are in the position where you have enough money to buy with cash, you can surely do much better over a decade or two by investing the money instead of locking it into home equity. Everyone here can easily jump a 3.5% hurdle. I have I bonds paying more than my mortgage rate...   

[Mikenhe]

Buying real estate with a mortgage makes a lot of sense in the US. Borrow for 15 to 30 years at 2.7-4.5% and write off the interest which lowers your effective rate to 1.7-3.5%?  If you get in trouble, you can negotiate with the bank to take part of the loss on your behalf. (Not that I endorse this).

 

If you are in the position where you have enough money to buy with cash, you can surely do much better over a decade or two by investing the money instead of locking it into home equity. Everyone here can easily jump a 3.5% hurdle. I have I bonds paying more than my mortgage rate... 

 

sure - unless you have no credit (I got shortsaled on my last house). I can't borrow a dime - even though I own more in bank shares than I wanted to borrow and only wanted a small % of my total net assest (most of which I had tied up in IRA's that the banks couldn't touch). Then you have to think outside of the box you want to live in :d

[CanadianMunger]

 

Remind yourself that money is the slave, not the master. There is no point to investing unless you intend to use the gains, & do it within your lifetime - while you are still able. Life is short, & it should be as well lived as you can possibly make it.

 

SD

 

This is a great point.  I co-own a business that I was lucky to buy into with my family when I turned 18.  I worked hard for the past 17 years, averaging 60-70 hours per week.  We began to realize that we were becoming slaves to the money so we paid up for some very competent help.  I calculated what I would need to be comfortable, and used the look through earnings from my portfolio plus my wages to achieve this number.

 

I'm down to 25 hours per week and just finished watching Breaking Bad all five seasons in 2 weeks while indulging in Oreo Cheesquake Blizzards from DQ. 

 

Life is indeed good when you make money the slave.

 

-CM

 

 

 

[Uccmal]

Mikeenhe,

 

Thanks for the awesome story. 

 

I was essentially broke in 1997', and semi-employed.  Now I am a millionaire, after the mortgage is paid.  I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way.  Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. 

 

Thanks for the comments Paul, Shalab, Sanj. 

[oddballstocks]

Mikeenhe,

 

Thanks for the awesome story. 

 

I was essentially broke in 1997', and semi-employed.  Now I am a millionaire, after the mortgage is paid.  I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way.  Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. 

 

Thanks for the comments Paul, Shalab, Sanj.

 

Congratulations, what an awesome story, from poor to a millionaire in 16 years.  I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it.

 

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss.

[wachtwoord]

Loved the Lennon quote

 

Me too, thank you Mike. I really don't care whether the story is accurate. The best stories usually aren't.

[Mikenhe]

Mikeenhe,

 

Thanks for the awesome story. 

 

I was essentially broke in 1997', and semi-employed.  Now I am a millionaire, after the mortgage is paid.  I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way.  Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. 

 

Thanks for the comments Paul, Shalab, Sanj.

 

Congratulations, what an awesome story, from poor to a millionaire in 16 years.  I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it.

 

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss.

 

seconded - thanks uccmal.

 

its a good point - just using compound interest and saving rguarly will get us all rich - but maybe not as quick as we'd like - or worst still - doing it along a path wher the target of being rich is all consuming.

 

I could have been much better of by now - maybe even retired but - I have a wife aqnd three kids.. they can be damn expensive!!! we try to visit various places around the USA and the world.

My youngest is 11 (got the first house just after she was born!). She's been to 14 different countries and way more states. We see travel as a means of education (hopefully while having fun) and have taken many trips. Allof this was using money that I could have invested in order to reach the end goal of being rich. However life is a journey and for all of us to have taken those trips and seen those places is an investment that cannot be measured in dollars. The true worth of them may have a payoff in the long term. Hopefully the payoff will be forever for the kids in terms of memories of trips that can never be replicated regardless of how much money you have. In twenty years there is no chance that my kids can spend a month visiting their Grandparents - so the real cost of those trips has value that can be measured purely in dollars.

 

Each to their own but I truly believe that there has to be a wider goal than accumulation of money.

 

[ragu]

Paying cash would probably cut my investment capital in half, but it would probably cut my heart rate a few BPM too.

 

matjone,

 

I'd suggest paying cash. The less anxious you are about finances, the less likely you are to make investing errors related to temperament.

 

Best,

Ragu

[Kraven]

Mikeenhe,

 

Thanks for the awesome story. 

 

I was essentially broke in 1997', and semi-employed.  Now I am a millionaire, after the mortgage is paid.  I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way.  Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. 

 

Thanks for the comments Paul, Shalab, Sanj.

 

Congratulations, what an awesome story, from poor to a millionaire in 16 years.  I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it.

 

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss.

 

seconded - thanks uccmal.

 

its a good point - just using compound interest and saving rguarly will get us all rich - but maybe not as quick as we'd like - or worst still - doing it along a path wher the target of being rich is all consuming.

 

I could have been much better of by now - maybe even retired but - I have a wife aqnd three kids.. they can be damn expensive!!! we try to visit various places around the USA and the world.

My youngest is 11 (got the first house just after she was born!). She's been to 14 different countries and way more states. We see travel as a means of education (hopefully while having fun) and have taken many trips. Allof this was using money that I could have invested in order to reach the end goal of being rich. However life is a journey and for all of us to have taken those trips and seen those places is an investment that cannot be measured in dollars. The true worth of them may have a payoff in the long term. Hopefully the payoff will be forever for the kids in terms of memories of trips that can never be replicated regardless of how much money you have. In twenty years there is no chance that my kids can spend a month visiting their Grandparents - so the real cost of those trips has value that can be measured purely in dollars.

 

Each to their own but I truly believe that there has to be a wider goal than accumulation of money.

 

+1 all around.  I couldn't agree more that these stories are great.  I think too many people are focused on money as an end rather than as a means to an end.  Too many people see every expense as "Buffett's Folly", that the hot dog and coke they got at the game with their kid could be worth a gazillion dollars if they just invested it and drank water instead.  I have made choices in my life as well that have cost me and will continue to cost me a lot of money.  However, that has been traded off against a happier life and one where my kids know me and where I'm not some guy they see in the house for 2 min on Saturday.

[bmichaud]

Mikeenhe,

 

Thanks for the awesome story. 

 

I was essentially broke in 1997', and semi-employed.  Now I am a millionaire, after the mortgage is paid.  I did all that without excessive compromise on my desire to do some exotic but not expensive travel along the way.  Once I leave my job in April, I am going to tell anyone who asks that I am a businessman, which I am. 

 

Thanks for the comments Paul, Shalab, Sanj.

 

Congratulations, what an awesome story, from poor to a millionaire in 16 years.  I think one lesson from your posts is patience, you didn't become a millionaire overnight, it took a while, but you persevered through two tough market downturns and are the better for it.

 

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I've enjoyed reading your posts, and it's clear you've enjoyed the journey, which is something so many people miss.

 

seconded - thanks uccmal.

 

its a good point - just using compound interest and saving rguarly will get us all rich - but maybe not as quick as we'd like - or worst still - doing it along a path wher the target of being rich is all consuming.

 

I could have been much better of by now - maybe even retired but - I have a wife aqnd three kids.. they can be damn expensive!!! we try to visit various places around the USA and the world.

My youngest is 11 (got the first house just after she was born!). She's been to 14 different countries and way more states. We see travel as a means of education (hopefully while having fun) and have taken many trips. Allof this was using money that I could have invested in order to reach the end goal of being rich. However life is a journey and for all of us to have taken those trips and seen those places is an investment that cannot be measured in dollars. The true worth of them may have a payoff in the long term. Hopefully the payoff will be forever for the kids in terms of memories of trips that can never be replicated regardless of how much money you have. In twenty years there is no chance that my kids can spend a month visiting their Grandparents - so the real cost of those trips has value that can be measured purely in dollars.

 

Each to their own but I truly believe that there has to be a wider goal than accumulation of money.

 

+1 all around.  I couldn't agree more that these stories are great.  I think too many people are focused on money as an end rather than as a means to an end.  Too many people see every expense as "Buffett's Folly", that the hot dog and coke they got at the game with their kid could be worth a gazillion dollars if they just invested it and drank water instead.  I have made choices in my life as well that have cost me and will continue to cost me a lot of money.  However, that has been traded off against a happier life and one where my kids know me and where I'm not some guy they see in the house for 2 min on Saturday.

 

Amen. As much as Buffett is utterly revered in these circles, he is BEYOND a terrible example of what it means to lead a balanced life. WTF cares that his net worth is over $60B - he spent zero time with his children and his marriage was in such shambles that his wife left him. Great role model.

[giofranchi]

The less anxious you are about finances, the less likely you are to make investing errors related to temperament.

 

Best,

Ragu

 

+1

 

giofranchi

[oddballstocks]

 

.....

 

Amen. As much as Buffett is utterly revered in these circles, he is BEYOND a terrible example of what it means to lead a balanced life. WTF cares that his net worth is over $60B - he spent zero time with his children and his marriage was in such shambles that his wife left him. Great role model.

 

Can't up-vote this enough!!!

[lu_hawk]

I feel like the OP's question is the kind of question that will be asked a lot when the market is up a bunch and people are feeling good about their investment skill, and won't be asked nearly as much if the market is down and people are hurting from recent losses and are questioning their abilities more than usual.  So keep that in perspective when making your decision: you are going to go through periods where you lose money on your portfolio.  The effect of that on your finances and your sanity will be different depending on if you borrow to invest or if you pay cash.  Not that I am saying you definitely should not borrow the money, just that you need to take a longer view of things when deciding.

[matjone]

I agree, terrible role model, but still somehow a good person.  He is using all his money to make the world a better place, so in a way his whole life was spent in the service of others, and now he spends a lot of his time trying to teach people how to avoid mistakes and live a better life.  If you read up on his childhood you can start to understand why he ended up the way he did.

[Guest valueInv]

Another thing to consider is that real estate can be a good inflation hedge. It is likely that we are going to hit some inflation turbulence going forward.

The added plus is being a borrower during inflationary times is a good thing. Your monthly mortgage payments will seem like peanuts after 10 years of 7% inflation.

[Uccmal]

Another thing to consider is that real estate can be a good inflation hedge. It is likely that we are going to hit some inflation turbulence going forward.

The added plus is being a borrower during inflationary times is a good thing. Your monthly mortgage payments will seem like peanuts after 10 years of 7% inflation.

 

Yeah, thats one reason I am not in a hurry to pay it down. 

[skanjete]

If spending half of your net worth doesn't affect your standard of living, and vice versa, if doubling your money wouldn't affect your standard of living, why wouldn't you pay cash?

 

Why risking something you have and need in order to obtain something you don't have or need?

 

There's not only the risk of your investments, there are also uncommon risks. Suppose you die suddenly in a car accident on your way back from buying the house. Your house and investments go to your wife/husband, but are first taxed by the (progessive) inheritance tax. If the surviving wife/husband has no clue about investing, she/he will have to rely on "external experts" for the (taxed) investments to pay off the debts. It's clear that in certain circumstances, the risk profile could change drastically.

 

Having said that, I'm in the case above, but I would have to borrow something anyhow because of tax reasons. But these reasons are beside the point of discussion of course.

[skanjete]

Regarding Buffett : one can hardly expect someone to produce a track record as Buffett's and expect him to live a "balanced" live.

 

Exceptional focused results only come from exceptionally talented and focused people, be it in sports, medicine, science or investing.

 

When I read Snowball, I was mostly impressed by 2 things : his autistic-like focus and his extreme, almost unhuman rationality. I suppose it's hard to switch off emotions once in the office and to switch them back on when coming home.

[Kiltacular]

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I like this comment.  But, I do feel that a part of it may be bit harsh -- people come from all different backgrounds with different kinds of pressures (perceived or real) and realities.  If they're young, my vote would be to cut them some slack BUT do impart your wisdom -- because you have the privilege of having a lot of it.  I'm older than these people contacting you, but I can tell readers here that having exposure to all the different stories here has been extremely edifying and has giving me wisdom about what actually does matter to me.  The common thread, in many cases, is the idea of achieving independence and freedom through wealth (not for the sake of Greed) but the real message is to take the wealth and enjoy it and don't sacrifice anything (but your absolute financial security) for the stuff you call "life" .  Some of the younger people contacting you may just be trying to figure out what Guy Spier figured out (on display in the recently posted interview).  Some might think that they need great numbers to make going on the investing journey worth it.

 

Overall, your response reminds me of a comment Munger made once (paraphrase): "Younger people ask me all the time - 'How can I become as rich as you but just a little faster?'" 

 

Wisdom, wit and irony only by adding the phrase "...but just a little faster."

 

Finally, others in this thread commented about Buffett's lack of balance.  I would say that I, too, was a bit shocked by the treatment he suffered at the hands of his mother.  He needed to figure out how to get the unconditional love he never could get from his mother.  His route was better than becoming a serial killer. Still, having an inkling of what a mother like that can be like, I think Buffett handled life pretty well even if, coming from a blank slate, his early years might not be what one would write on the slate given all options.  Moreover, it isn't clear to me that he neglected his family but maybe he did.  He certainly spent more time with his kids than my pops did with me -- it has only been in recent months, reading this board, that I realized this wasn't common.

 

 

[Uccmal]

 

.....

 

Amen. As much as Buffett is utterly revered in these circles, he is BEYOND a terrible example of what it means to lead a balanced life. WTF cares that his net worth is over $60B - he spent zero time with his children and his marriage was in such shambles that his wife left him. Great role model.

 

I actually think he was probably an average father for the times.  Busy, but I expect he is pretty even tempered, which goes along way, in my mind.

 

50% + of marriages end in divorce.  Buffett's marriage broke down because his wife grew out of the role she was in.  She was married at 19 in the early 50s - anyone watch MAd Men.  The fact she didn't just sue him for support, but set him up with a girl friend, and continued to participate in his public life, speaks volumes about him as a person.

 

We cannot control the actions of others, and cannot predict how people will grow and change.  A close friend on mine's quiet housewife mother stayed at home until his younger brother moved out the door, and within weeks had taken up with the husband of their closest friends.  His father, a decent person was furious and baffled.  Happens to good people all the time. 

 

[Mikenhe]

I don't know Mr Buffett or his home circumstances. Even if I did I this it would be inappropriate to comment on them.

 

 

anyway - I think your finances and assets are a tool and you should use them to suit your circumstances. In my circumstance I have take a profit on investments and used them to purchase another investment - as well as putting an end to an outgoing cash flow which was hampering me from doing as I wished. I chose the route I did because my options were limited.

 

anyone thinking of buying a house needs to rationalise their need to use the cash for a property and see if there are other options that make more sense. That decision isn't just a pure financial one and everyone will have differing variables of differing importance to them. Its also very hard to be rational about this decision as it is influences by a very emotive issue - where to live and how.

 

I don't think that there is a wrong answer.

 

For me I was paying nearly $20,000 a year in rent. How much of my investments do I cash in to prevent that happening. that $20k is after tax dollars. Lets say I put it into a 401K. how much is it worth at that point?

Gross it up! its a decent amount. Plus with the house as an asset I can always mortgage it later... if I feel I want to.

 

 

for me Its also a quality of life issue.. using cash to purchase a house improves my quality of life. I'll be having a beer this sunday while overlooking the lake (and thinking about what work I need to do around the house). Thats not a bad place to be in..

[wachtwoord]

for me Its also a quality of life issue.. using cash to purchase a house improves my quality of life. I'll be having a beer this sunday while overlooking the lake (and thinking about what work I need to do around the house). Thats not a bad place to be in..

 

Meh housework ;)

[oddballstocks]

I get emails from newly minted graduates who "want to be rich" and in a lot of ways it saddens me.  I believe that anyone with a good job and a high savings rate can become rich, but it takes a long time.  It's important to enjoy the journey as much as the destination because it isn't something instant.  Most don't become rich overnight, and being so myopically focused on becoming wealthy can lead one to miss the joys of life chasing after the wind.

 

I like this comment.  But, I do feel that a part of it may be bit harsh -- people come from all different backgrounds with different kinds of pressures (perceived or real) and realities.  If they're young, my vote would be to cut them some slack BUT do impart your wisdom -- because you have the privilege of having a lot of it.  I'm older than these people contacting you, but I can tell readers here that having exposure to all the different stories here has been extremely edifying and has giving me wisdom about what actually does matter to me.  The common thread, in many cases, is the idea of achieving independence and freedom through wealth (not for the sake of Greed) but the real message is to take the wealth and enjoy it and don't sacrifice anything (but your absolute financial security) for the stuff you call "life" .  Some of the younger people contacting you may just be trying to figure out what Guy Spier figured out (on display in the recently posted interview).  Some might think that they need great numbers to make going on the investing journey worth it.

 

Overall, your response reminds me of a comment Munger made once (paraphrase): "Younger people ask me all the time - 'How can I become as rich as you but just a little faster?'" 

 

Wisdom, wit and irony only by adding the phrase "...but just a little faster."

 

Finally, others in this thread commented about Buffett's lack of balance.  I would say that I, too, was a bit shocked by the treatment he suffered at the hands of his mother.  He needed to figure out how to get the unconditional love he never could get from his mother.  His route was better than becoming a serial killer. Still, having an inkling of what a mother like that can be like, I think Buffett handled life pretty well even if, coming from a blank slate, his early years might not be what one would write on the slate given all options.  Moreover, it isn't clear to me that he neglected his family but maybe he did.  He certainly spent more time with his kids than my pops did with me -- it has only been in recent months, reading this board, that I realized this wasn't common.

 

Good points, I guess I was going at the Munger angle.  People want to become rich, but not in their 40s-50s-60s, but in their early 20s.  Sure it happens to some who strike it rich with Facebook or Instagram or something, but not many.  The tried and true path is to work hard and save.  Getting there quicker requires a boost, from either starting a business or investing wisely.  I've just had a number of emails from people who say their goal in life is to get rich.  If that's the goal satisfaction is rarely obtained because there is always someone richer.

 

You bring up a good point about background and pressures, I hadn't thought of familial pressure.  I have worked with foreigners who will absolutely kill themselves for meaningless failing projects working 80+ hours because this is what they do, and they are working to make their parents proud.  This isn't just a presumption on my part, I've had these conversations.  They are honored to have the type of job they have, and they view their role is going 200%, even if it seems strange to others.

 

The goal really is finding balance, and viewing money as a tool.  Death is the great equalizer, no one takes anything with them, so whether you had a billion or died in debt the end is the end.  Use it as a tool now.

 

One parting thought is to echo something a few have said in the thread already, save for tomorrow, but don't neglect today.  We all presume we'll live well into old age and die rich and happy, but that's not reality.  I've seen people go much younger than they should, and it always puts things into perspective.  We need to plan for the future, but enjoy today, nothing is guaranteed.  Enjoy youth, I know many rich older investors would give up significant portions of their wealth to be young again.