Has anyone read Rich Dad/Poor Dad?

[jpiniero]

Over a long period of time you will most likely sell it for a decent gain. It was that way for over 100 years until the bubble. It's a matter of timing, just like any investment.

Most people don't live that long in one place though. I think I saw a study that the average stay is 5-7 years. If you turn a profit after 5-7 factoring in the 6% you lose from selling, you did pretty good... or got lucky. Which is why it's so important to not overpay if you actually want to get any equity out of it.

 

[Mai72]

Here is Rich Dad on why a home is not an asset.

https://www.youtube.com/watch?v=f0VcA4EwJ2I

I think people have forgotten that we just went through one of the worst housing crashes in history. I'm also certain when people think about the housing market they are reminiscing about the time when homes were dirt cheap. In my area certain people have made a fortune buying and selling homes but those days are over. Homes in the early 90's were once $45k, but are now $250k. If you were to buy that home at $250k how much is it going to appreciate? Are you going to be able to sell it for $350k in 20 years? I highly doubt it. Also, what happens if we have another housing crash?

 

[Mai72]

If you rent the house house, where are you supposed to live?

You create another liability and get *nowhere*.

My landlord had the perfect setup.

He had two apartments in the back which he rented. Those apartments paid a large part of his monthly mortgage.

 

[halik]

You spent money on an item and sold it at a loss. That's a bad financial move.

If it's an item you need such as a house or a car, that's an even worse move.

I don't see how this is flying over your head.



I never fucking said you shouldn't buy a house! And that link is an edge case that doesn't apply to the vast majority of homeowners.

Actually, i sold the car for $3K more than what I bought it for, german collectibles are having a good couple of years.

And that "edge case" entirely invalidates your point. If you can borrow money for significantly less than what your return on investment is, it would be irrational not to borrow.

I have a guaranteed income fund in my 401K that currently yields 3.9%. My mortgage is locked in some 25bp lower than that and that's ignoring the tax benefit. Paying off my mortgage early would be idiotic.

 

[Zargon]

You spent money on an item and sold it at a loss. That's a bad financial move.

If it's an item you need such as a house or a car, that's an even worse move.

I don't see how this is flying over your head.



I never fucking said you shouldn't buy a house! And that link is an edge case that doesn't apply to the vast majority of homeowners.

how is it flying over your head that living anywhere, rental or not, and hell, transportation, COSTS MONEY.

 

[spidey07]

Most people don't live that long in one place though. I think I saw a study that the average stay is 5-7 years. If you turn a profit after 5-7 factoring in the 6% you lose from selling, you did pretty good... or got lucky. Which is why it's so important to not overpay if you actually want to get any equity out of it.

Well most people are stupid. As evidenced in this thread about money.

 

[spidey07]

Actually, i sold the car for $3K more than what I bought it for, german collectibles are having a good couple of years.

And that "edge case" entirely invalidates your point. If you can borrow money for significantly less than what your return on investment is, it would be irrational not to borrow.

I have a guaranteed income fund in my 401K that currently yields 3.9%. My mortgage is locked in some 25bp lower than that and that's ignoring the tax benefit. Paying off my mortgage early would be idiotic.

You get it. Make money make more money for you.

So few people can look past what does it cost per month.

That's why the car salesman a asks that question first. Folks don't think long term wealth building. They only think money out each month and not how to build wealth.

 

[LegendKiller]

Most people don't live that long in one place though. I think I saw a study that the average stay is 5-7 years. If you turn a profit after 5-7 factoring in the 6% you lose from selling, you did pretty good... or got lucky. Which is why it's so important to not overpay if you actually want to get any equity out of it.

For 130 years, before the bubble, housing appreciated .5-.9% above inflation, every year, nationwide. My parents bought a house in 1978 for $42k and sold it in 2009 for $300k. Yes, even in the middle of the bubble. If they had sold in 2006 it would have easily fetched $350k.

It has nothing to do with "getting lucky". Even under 5-7 years you're probably looking at 10% appreciation.

 

[LegendKiller]

Here is Rich Dad on why a home is not an asset.

https://www.youtube.com/watch?v=f0VcA4EwJ2I

I think people have forgotten that we just went through one of the worst housing crashes in history. I'm also certain when people think about the housing market they are reminiscing about the time when homes were dirt cheap. In my area certain people have made a fortune buying and selling homes but those days are over. Homes in the early 90's were once $45k, but are now $250k. If you were to buy that home at $250k how much is it going to appreciate? Are you going to be able to sell it for $350k in 20 years? I highly doubt it. Also, what happens if we have another housing crash?

But the early 90s was 20 years ago, over that period they did OK. Not great, not like stocks, but OK.

The bubble was an aberration, we are nearly back to where we were before, probably could have done with another 10% or so correction, but we are almost there.

The problem with the bubble is that when people my parent's age bought a house, it was 1) House, 2) stability, 3) nest egg/investment. Somewhere in the late 90s to early 2000s #3 moved to #1.

But you *STILL* need a house. You can either rent and pay somebody else's mortgage, or you can buy and pay your own and build your own equity. That's not a liability, it is a marginally appreciating asset.

 

[Capt Caveman]

Here is Rich Dad on why a home is not an asset.

https://www.youtube.com/watch?v=f0VcA4EwJ2I

I think people have forgotten that we just went through one of the worst housing crashes in history. I'm also certain when people think about the housing market they are reminiscing about the time when homes were dirt cheap. In my area certain people have made a fortune buying and selling homes but those days are over. Homes in the early 90's were once $45k, but are now $250k. If you were to buy that home at $250k how much is it going to appreciate? Are you going to be able to sell it for $350k in 20 years? I highly doubt it. Also, what happens if we have another housing crash?

Depends on location, some areas did not have a crash. A neighbor is selling their 2 bedroom condo. Bought it six years ago for $450k and listing it for $590k. They already have multiple offers all over asking price.

 

[nixium]

Can everyone agree on a definition before proceeding on in this thread

Liabilities = debt. An asset which costs to maintain is NOT a liability.

And yes it's silly to pay off a house if your interest rate is ridiculously low.

 

[jpiniero]

Depends on location, some areas did not have a crash. A neighbor is selling their 2 bedroom condo. Bought it six years ago for $450k and listing it for $590k. They already have multiple offers all over asking price.

I wouldn't be surprised if right now is in the middle of a second smaller bubble. People overpaying to avoid higher the inevitable interest rates but overdoing it.

 

[Capt Caveman]

I wouldn't be surprised if right now is in the middle of a second smaller bubble. People overpaying to avoid higher the inevitable interest rates but overdoing it.

Again, depends on location. There wasn't a first bubble here. Just lots of demand and little supply.

 

[Imp]

I wouldn't be surprised if right now is in the middle of a second smaller bubble. People overpaying to avoid higher the inevitable interest rates but overdoing it.

No idea what is going on in the US. All I know is that you guys at least had a huge pop/deflation of the bubble.

Canada had a blip in 2009-ish and kept going. Good times ahead... I'm debating if I should switch over a chunk of my money to good old Americano dollars in case something happens.

 

[Mai72]

My father foreclosed on his house 3 years ago when my mother died. He just left the house and stopped paying on it. Everything was in my mom's name.

The bank hasn't put the house back in the market. Did they do this to influence the housing market? I guess too many homes in the market is a bad thing.

 

[Golgatha]

Also, a good companion to this book is Dave Ramsey's book(s) on getting out of debt. I know he isn't always popular around here, but his "snowball" principle of paying off the smallest bill first & going from there really works for a lot of people. I don't agree with everything he has to say (for example, leasing cars - that worked out to my benefit tremendously for a good 10 years or so), but he has some really solid base principles like the Rich Dad book has.

Disclaimer - I'm taking Financial Counselor training at Dave Ramsey's HQ this July. I believe in his system, and frankly, it works in most cases if you're willing to follow his advice to the letter.

That said, yes, Dave Ramsey's snowball method makes absolutely no mathematical sense whatsoever. I would never debate otherwise and if you're extremely disciplined with money, then you probably don't need his help getting out of debt in the first place. His (Dave Ramsey's) methods are setup to give quick wins with money to people who are currently mismanaging it. The psychology of it all makes good sense to me given my anecdotal interactions with people who don't manage money well. They need and thrive on those quick wins to keep the snowball rolling on.

Since I'm already off topic, I would recommend Broke USA by Gary Rivlin and The Millionaire Next Door by Thomas Stanley and William Danko to get your brain thinking like a rich person. Broke USA will teach you how the financial industry if fleecing the sheeple (and thus how you can avoid this fleecing) and TMND will give you a reality check on how truly rich people live their lives. I actually would not recommend TMND for judging your PAW/UAW/etc. status unless you're over 50 years old. At that point, I feel their calculations have some merit.

One final food for thought tidbit. The average person spends less than 4 hours a month considering what they are doing with their money. The average person is also broke or at least living paycheck to paycheck. One unifying thing in this thread is everyone posting their opinions about finances, even though they may have different opinions, is probably above the 4 hour average and I would wager they are doing just fine financially. My recommendation...spend the time to get yourself educated about how to handle money. There is a lot of personal growth and peace to be had when you attain and apply this type of knowledge.

Another disclaimer - I'm proud to say I'm debt free as of November 2013, at which time I paid off my mortgage. I had been putting 20% into my Roth 401k and have 529 plans for both of my son's college educations several years from now. Now I'm doing 30% into my Roth 401k with increases to stop at 40% of my income 10 years from now. I'm 36, and to quote Dave Ramsey, I'm living like no one else. In short, I raised up my income significantly (especially over the last 4-5 years) by working hard, while keeping my expenses constant; at the end of the day it really is that simple.

 

[NesuD]

He and several others write books telling you their way to make money. Strangely not one of their books tells you how to make money selling books telling you how to make money. Sound a little off? It does to me.

 

[Golgatha]

Can everyone agree on a definition before proceeding on in this thread

Liabilities = debt. An asset which costs to maintain is NOT a liability.

And yes it's silly to pay off a house if your interest rate is ridiculously low.

My interest rate was only 3.375% on my mortgage. I paid it off while still saving for retirement. If I lost my job tomorrow for whatever reason, I still have a roof over my and my family's head, and I can get by for years before money would ever become a dire concern. I'm fully aware that I could have invested in the stock market/etc. for better returns and continued to pay my minimum mortgage payment every month instead of knocking it out so quickly. I could've had lots and lots more money...when I'm very old and retiring. I chose to provide security for my family now and have the current cash flow to be able to enjoy life while I'm young. Sir, I assure you from personal experience; neither one of those goals are "silly".

 

[halik]

My interest rate was only 3.375% on my mortgage. I paid it off while still saving for retirement. If I lost my job tomorrow for whatever reason, I still have a roof over my and my family's head, and I can get by for years before money would ever become a dire concern. I'm fully aware that I could have invested in the stock market/etc. for better returns and continued to pay my minimum mortgage payment every month instead of knocking it out so quickly. I could've had lots and lots more money...when I'm very old and retiring. I chose to provide security for my family now and have the current cash flow to be able to enjoy life while I'm young. Sir, I assure you from personal experience; neither one of those goals are "silly".

You do realize that under the "losing job" scenario, you could just pull money from you portfolio to pay for your mortgage, right?

In fact prepaying your mortgage makes you worse off in adverse situation, since now your money is tied in fairly illiquid asset:
Imagine some situation where you need immediate access to large sum of money(some liability in excess of your insurance coverage etc). You are strictly better off by having $200K sitting in your investment account rather than equity in your house.

 

[Golgatha]

You do realize that under the "losing job" scenario, you could just pull money from you portfolio to pay for your mortgage, right?

In fact prepaying your mortgage makes you worse off in adverse situation, since now your money is tied in fairly illiquid asset:
Imagine some situation where you need immediate access to large sum of money(some liability in excess of your insurance coverage etc). You are strictly better off by having $200K sitting in your investment account rather than equity in your house.

Umbrella policies that exceed your net worth are extremely cheap insurance (about $200/yr per million insured) against catastrophically sized insurance claims against you. They also have the benefit of automatically making the insurance company's lawyers, who I'm not paying for, start looking at the claim seriously when the threshold for the umbrella policy kicks in, or at least mine does.

Also, if I lost my job in 2008 when the housing bubble burst (oh wait, I did), my "liquid assets" in the now crashed stock market would be sold at a 40-50% loss to continue to pay my mortgage. On that same note, my 12 months (my personal comfort level) of expenses in savings are now much lower because I don't have a mortgage. This freed up money for investing rather than sitting in a useless (in terms of interest earnings) savings account, which now has an extra 12 years (time if I had made minimum payments on the mortgage) to earn compounding interest at a higher rate than my original mortgage rate. Further, I now have lower expenses and can generally invest a higher percentage of my income into appreciating assets.

Think of it this way. How many people in this thread would seriously advise me to take out another 15 year mortgage on my current residence, put that roughly $185k (because paying PMI is stupid on steroids at this point) into the stock market, and begin making mortgage payments again? Not to mention the mortgage payments will require me to lessen the amounts I'm putting into my investment accounts over that same 15 year period. Finally there's the intangible peace of mind that comes with not being in debt. Seriously, is taking on debt enjoyable to some people? Sure as hell isn't for me.

 

[Kaido]

That said, yes, Dave Ramsey's snowball method makes absolutely no mathematical sense whatsoever. I would never debate otherwise and if you're extremely disciplined with money, then you probably don't need his help getting out of debt in the first place. His (Dave Ramsey's) methods are setup to give quick wins with money to people who are currently mismanaging it.

That's exactly it - it's not just mathematical sense, there's psychology involved.

 

[halik]

Umbrella policies that exceed your net worth are extremely cheap insurance (about $200/yr per million insured) against catastrophically sized insurance claims against you. They also have the benefit of automatically making the insurance company's lawyers, who I'm not paying for, start looking at the claim seriously when the threshold for the umbrella policy kicks in, or at least mine does.

Also, if I lost my job in 2008 when the housing bubble burst (oh wait, I did), my "liquid assets" in the now crashed stock market would be sold at a 40-50% loss to continue to pay my mortgage. On that same note, my 12 months (my personal comfort level) of expenses in savings are now much lower because I don't have a mortgage. This freed up money for investing rather than sitting in a useless (in terms of interest earnings) savings account, which now has an extra 12 years (time if I had made minimum payments on the mortgage) to earn compounding interest at a higher rate than my original mortgage rate. Further, I now have lower expenses and can generally invest a higher percentage of my income into appreciating assets.

Think of it this way. How many people in this thread would seriously advise me to take out another 15 year mortgage on my current residence, put that roughly $185k (because paying PMI is stupid on steroids at this point) into the stock market, and begin making mortgage payments again? Not to mention the mortgage payments will require me to lessen the amounts I'm putting into my investment accounts over that same 15 year period. Finally there's the intangible peace of mind that comes with not being in debt. Seriously, is taking on debt enjoyable to some people? Sure as hell isn't for me.

With an umbrella policy, it's not irrational what you're doing, just very very risk averse. Not that's something wrong with that, just opportunity cost.

Debt is awesome; no better way of ramping up your return on equity. Back in 03-04, I had my car financed at 3.99 and my savings account was yielding 4.99%... the bank was paying me to borrow their money.

 

[Golgatha]

With an umbrella policy, it's not irrational what you're doing, just very very risk averse. Not that's something wrong with that, just opportunity cost.

Debt is awesome; no better way of ramping up your return on equity. Back in 03-04, I had my car financed at 3.99 and my savings account was yielding 4.99%... the bank was paying me to borrow their money.

Provided you have the savings to cover the entire price of the car, then yes, free money is free money. Just set up an auto-pay withdrawal for the payments and collect your 1% free money. Given that I haven't seen even a CD with a 5% return for 10+ years, I'd say it's safe to say I don't have to worry about these types of scenarios for awhile. 😉