Advice I'm Glad I Never Took #1
From my prior post:
Co Worker #1: "Shtinky, you need to buy yourself a property – ANY property..."
Shtinky: “I can’t afford it with my student loan payments.”
Co-Worker #1: “Yes you can! Just talk to my broker. He’s got so many amazing mortgages he can offer you. You can get a mortgage where your monthly payments will be around where your rent payments are! And besides, you’ll get tax deductions and you can pay off your student loans with your mortgage!!”
Yeah. Your broker would have given me a negatively amortizing, option ARM, subprime loan and I'd be homeless now.
Lesson Learned: If it sounds too good to be true, it probably is.
Advice I'm Glad I Never Took #2
During the housing bubble heyday, several people told me I should take money out of my 401k and plunk it in real estate. "You're taking money from one investment to another -- One that will NEVER lose money!" Uh-huh.
One friend told me that her single friend took money out of her 401k to buy a 1 BR condo. She said I should do the same since I'm pissing money away in rent on a 1 BR apartment anyways. Fast foward to now: That single friend is now married, moved to Northern California and let her 1 BR condo go into foreclosure.
Lesson Learned: Don't tap into your 401k to buy property because that's a clear sign that you can't afford the home.
Advice I'll Never Take #1
I have a co-worker who bought a home beyond his means. Last September, he was fretting that his mortgage will re-adjust in April. He couldn't afford to refinance since his loan is a jumbo loan and the mortgage rates are more than his adjustable rates are. He was thinking about refinancing to a 5-year interest-only loan.
Anyhow, he advised me that when I buy my first home that I shouldn't be discouraged if it's a small place. He suggested that I keep trading up like him. Ummmm... Yeah... No offense, but I don't think this guy is a role model.
Lesson Learned: Don't keep trading up if you can't afford it.
Advice I'll Never Take #2
Remember Co-Worker #1 from above? He said that he uses his second home like a piggy-bank. Every time the value of the home goes up, he takes money out. Since it's his second home, I guess it isn't as bad as what another friend has done to his primary home. (It's still bad advice, though.)
Below is a true and graphical example of what this other friend did. It's a picture perfect example of "what not to do with the equity in your own home".
Lesson Learned: Your house isn't a piggy bank!
7 comments:
I love this post! Good for you for sticking to what makes you feel comfortable.
Well I now counsel people to NOT buy a home unless they are really ready, I think most aren't. I certainly didn't go about it the right way and now I'm paying for it. Live and learn I guess. Thanks for sharing.
Shtinky, I agree that with your debt load, it isn't a good idea to buy a house. However, as for this bubble popping mess we're in, yeah, I lost a buttload of money (albeit imaginary money, since unless you sell and keep the equity, to me, it's not really money in my hand), but I cant say I regret buying property. I like having my own place and it's pretty even with rent when I factor in tax deductions. Hopefully this real estate aversion I see will subside soon.
Great post. I'm in my early 30s and have never owned a home, and if one more person tells me, "You HAVE to buy this year...you can't pass up this opportunity, you get the tax credit, etc." I will scream! I have little savings right now except for a baby e-fund, and I only recently got out of debt. Plus, I want to move to a bigger city (LA, maybe!) before I'm tied down to any sort of mortgage. Renting makes sense for some people! Sometimes the freedom is worth it.
Funny but true: "Yeah. Your broker would have given me a negatively amortizing, option ARM, subprime loan and I'd be homeless now."
I'm a firm believer in marching to the beat of your own drum, at least then you can keep the rhythm.
Bonnie is right, there is definitely freedom in renting. I absolutely hate it when people are told that they're throwing money away by renting. No they are not! They are paying for a place to live just like everyone else, renting or buying. Good grief. In 2 years I've paid over $7K in plumbling related issues - now that's throwing money down the drain ... literally!
Where did you find that ghastly refi graph? YIKES!
Good on you for sticking to your guns. I fell into a bit of a trap at 30 and watching 5 of my friends buy places. I just *HAD* to buy a place.
In terms of non-financial benefits there has been upside. In terms of investment, it's been a huge waste. But at least I have a mortgage that isn't burden and I can ride this market out.
Stick with your own wise counsel and you'll be fine. :-)
Excellent post indeed!!! Even though i wanted to vomit at that idea of cashing out your 401k to buy a house! I know in theory it sounds good (it did to me 3 years ago) but MAN is it not smart to do that...*shiver*
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