I BOUGHT AN OVERPRICED HOME WITH AN 8% MORTGAGE. I'M A MORON. BUT I REPEAT MYSELF.
A fool and his money are soon parted.
An exceptionally well written piece by Dan Harkey that speaks to buying to achieve upward mobility, a bigger home, more stuff and an affluent lifestyle to impress friends, better social status and, plain and simple, show off that you've arrived. Yeah, you've arrived. At the point where you're writing checks your ass has to cash. The problem with this scenario is you have gained absolutely nothing except making everyone; broker, bank and insurance agent and tax collector rich by your economic ineptitude while you're peddling as fast as you can to arrive at penury and debtor's prison. But hey, it's the American way.
Dan's been in the private money market for 50 years, very successful and now, with some time on his hands since his daughter is running the show, he writes really good stuff. An avid reader of Zero Hedge, stacker and a deeply thoughtful man, he shared this piece with me. Dan is to private money lending as I am to SBA and Commercial loans, both of us in the 10 figure origination club. We've known each other for a couple of decades and correspond regularly.
He lives in the great state of Kleptifornia enjoying the sun and beach, the fruits of his lifetime of hard work with time to reflect how it works in the real world. It's always enjoyable to invite the 140 IQ folks to offer their thoughts so we 115 pointers can up our game.
Take this article to heart, it speaks clearly to what many face today.
Ladies, when you read this you'll know what I mean. Don't let your man do stupid stuff. Women know what making and keeping a budget means.
A few links, nothing super serious, and some fun stuff below brings Dan's points home, then you find his article and a podcast from our fearless leader.
FROM AGXIIK WITH RENOZEP AS EDITOR
Ronny Hawking and the Hawks. This great song's title says it all
Ronnie Hawkins & The Hawks - Livin' A Life I Can't Afford - YouTube
John Goodman's incredible rant from movie The Gambler.
Got's FU Money? No. Then you're Walhberg owing large to two place you shouldn't
'If you're up $2,500,000 million buy a house with a 25 year roof, an indestructible Jap economy shit box and put the rest in the system at 3-5% to pay your taxes. That's your base. Got me? That's your fortress of solitude; Your position of FU.
I pretty much memorized this bit from the great John Goodman for obvious reasons.
The Gambler (2014) - F*** You Scene (7/10) | Movieclips - YouTube
Funny Im Broke Commercial - YouTube
This guy's being chased by Goodman's goons.
Shifting gears a bit...
If you're a man walking in the world, obeying Firearm Rule #1 (ABC) you MUST remember the 4 most important letters in the Manoverse.
S is optional.
What's IDNT? 4 letters that should rule your universe
Say it, SAY IT. SAY IT!
Repeat it every time you see a big shiny house, a high speed low drag pocket rocket, a new gat, a chrome plated gizmo that shouts "Buy Me!", or a smokin' hot Cherchez La Femme in a skin tight red dress and CFM pumps.
I. D. N. T. Fools always forget these 4 letters.
I DON'T NEED THIS
(Scheiss is optional)
This song is for you if you forget those letters.
Dr. Buzzard's Original Savannah Band - Cherchez La Femme - YouTube
STONE THE CROWS. Ya gotta love this song it' so freakin' retro! The song is perfect for every swingin' dick who thinks the high life is for him
'Tommy LaTolla lives on the road
He lost his lady 2 months ago
Maybe he'll find her, maybe he won't
He's blowing his mind on cheap reds and wine
Cuz now he's alone, no woman no home
Cherchez la femme'
Don't be Tommy LaTolla.
If you're not as rich as Eddie Murphy, don't give up half, Eddie!
Who's the Latino dude in the flat hat and reat pleat playing the xylophone
Anyhoo, enjoy the article. It's a gob stopper for all you Tommy La Tollas.
Watch your ass, you might end up like this dude.
Johnny Cash - Hurt - YouTube
(The article below is reprinted with the consent of the author, Dan Harkey.)
Should I Sell my Home and Buy a Better One?
|By Dan Harkey|
Educator & Private Money Finance Consultant
m: 949 533-8315 | e: dan[at]danharkey[dot]com
Introduction:1) A family purchased a $400,000 home and financed 80%, with a $320,000 mortgage. They have lived in the property for five years, and because of amortized loan payments, their balance has been reduced to $310,000. They refinanced their current home loan at the best time for a 3%, amortized over a 30-year loan. It appeared like free money because inflation rose to 10% or more.The refinanced house payment was $928.89 principal and interest monthly. Over the life of the loan, the total payments were $668,800.60, with real interest paid of $358,800.60, excluding tax deductibility.
Why would I sell my home, give up my three percent mortgage, and buy a new one with an eight percent mortgage when my payments are five times greater? Low interest rates have trapped most homeowners in their current homes. They could not qualify for an eight percent mortgage.
Owning a property with an owner-occupied home is part of the American dream. Family, kids, two dogs, and two cats in the yard is still a dream. Keeping up with the Joneses is still part of the American psyche. More home space in the suburbs, better schools, better air to breathe, and safer shopping opportunities are all good and truthful arguments. Visions of betterment and finances sometimes conflict.
A family's desire to move upward:
A family with a $700,000 home is considering trading up to a $1,500,000 home. It is an excellent idea for all the reasons except for the financing barrier and inadequate monthly cash flow to pay the bills.
Their property taxes are based upon Proposition 13 in California, which calculated the beginning tax of about 1.25% per annum and allows for only 2% per year increases. Their initial property taxes were $5,000 but increased to $6,000, and Homeowners dues were $300 but have gone up to $500 per month. Their property insurance, with various endorsements, including a $1,000,000 liability rider, originally cost $1,000. But insurance costs have increased, so the current outlay is $2,500 annually.
The monthly costs of homeownership, excluding maintenance and capital improvements, are as follows:
In addition, there are monthly outlays for electricity, natural gas, water & and trash, possibly adding $1,000 in living expenses.
- Loan payment of $929.
- Property tax $500.
- HO dues $500.
- Insurance $208.
- Total $2,137.
2) It’s time to move up to a larger home for all the obvious reasons and purchase that beautiful new home for $1,500,000. The down payment would be 20%, $300,000 out of the equity from their existing house, and some additional cash. They saved extra cash because they were not strapped with super-high house expenses. The new loan will be $1,200,000, payable with an 8% amortizing loan over 30 years.
If they could obtain the same 3% mortgage as their current home, on $1,200,000, the payment would be $3,596, but interest rates have dramatically increased.
Interest rates on jumbo loans are now 8% and rising. The new house payment would be $8,067.46 per month. Over 30 years, payments will be $5,808,570.63, with interest payments of $4,608,570.63, excluding tax deductibility.
The move would allow the family to more than double the home's square footage, a larger lot size in a suburban setting, with a great school district, tree-lined streets, park-like open space, less urban clutter, less crime, less traffic, better shopping opportunities, in a charming, planned unit development with an association to take care of the common area. More crudely, some may also think that they can escape the cesspool of high-density-stack-and-packed, homeless tent-lined streets and crime-ridden city environments.
- Loan Payment $8,067.
- Property taxes: 1,770.
- HO dues 700.
- Property insurance 400.
- Total $10,937.
The tradeoffs are extremely difficult for improving family well-being vs. the pocketbook.
Families thinking about upward movement in the social strata must answer the question of financial feasibility. Is it a sound economic decision if my monthly house payments increase from $2,136.89 to $10,937.? The family's monthly house payments would grow five times greater.
The above example illustrates the primary reason for stress in real estate sales, mortgage sales, and related real estate support services. Expect continued fallout. When the real estate salesperson does not make the sale with corresponding commissions, the loan agents do not earn commissions, and escrow and title do not occur. The local Starbucks, the favorite restaurant, the dry cleaner, new clothes, car payments, and maintenance are all eliminated or at least deferred. The list of affected service providers suffering from a financial downturn is long.
The difficulty in upward social mobility:
There is a natural inclination for families to desire to climb the social ladder with the hypothesis that bigger, better, faster, and higher quality is all part of economic success. Yet there is a steep price to pay breaking through each level.
Maintenance and utility expenses would double from their prior home, bringing the expense to about $13,000 per month. Assume the family has personal expenses of another $5,000 per month for two average economy cars, food, medical insurance, dental, I care, dinners out, daycare, pet care, and IRA contributions. The total of $18,000 monthly expenses using a backend ratio of 45% would require an annual income after federal and state taxation of $480,000. To pay federal and state taxes, this family must make about $750,000 annually and only tread water.
The American economic system has created this untenable situation that systematically excludes most hard workers and keeps those who can afford the inflation-driven financial treadmill. Remember, money debasement occurs as the government injects free fiat money into the financial system. Inflation and money debasement are taxes on the consumers.
Credit card expenses are at a crisis level. That seems like an efficient payment method, but it is economic exploitation because interest rates could increase to 30% annually. A Chase Visa credit card’s interest on purchases is 19.49%, cash advances 29.99%, and late fee is $39. per month, plus interest. Banks require minimum interest-only monthly payments because they keep the loan outstanding longer.
Current consumer credit card debt in the U.S. is 1.03 trillion dollars, with 93% of consumers having an average of $8,000 outstanding. Debt is an enslavement system by design. Bankers take in deposits and lend them out at 8% to 30% per annum. The central banking system has allowed the creation of new money deposits out of thin air, lending them out at 8% to 30%. It is a great business model that exploits the taxpayers and the borrowers.
The crisis in move-up housing:
The above examples are the reason for the young homeowner-purchasing crisis in housing. It is economically infeasible for the average young family to move upward. This family is stuck with their low-interest rate loan. Less than 10% of home purchasers can qualify for home loans at higher interest rates.
New and resale home markets are systemically frozen not because of a lack of demand but because potential buyers cannot afford to move. By the second quarter of 2024, there will be a significant downturn in real estate sales.
However, many investor purchasers expect to turn the homes into rental income, which has caused reasonable price stabilization while renters are being locked out from the opportunity of homeownership.
There are three subsets of home purchasers who will still buy homes:
- Large corporations like BlackRock purchase single families as a long-term rental strategy. They pay cash for homes.
- Super-rich with accountants to direct them to the correct decision because of interest tax deductibility or because it is an income investment rental strategy. Many can pay cash.
- Government with plans on subsidizing home purchases with your tax dollars. The result of subsidizing is to redistribute from the productive members of society to the less or nonproductive members. If the government had its way, every welfare recipient and indigent family would own a home; they contributed nothing to get and will contribute nothing to own and maintain. Apply or show up at the border and get your new life dream home for free. Tax dollar redistributions will pay for this insane strategy.
Alternative financing sources are still doing well:
- Inherited homes by beneficiaries of deceased parents are a source of home transfers that the kids may occupy but do not provide for an additional supply of homes for sale. These transfers are usually not considered demand-supply or market-driven sales.
- Some families who can qualify are resigned to paying the extra interest payments and purchasing owner-occupied homes even at 7 to 8% fixed interest or an adjustable rate with a low-interest teaser rate. Even with the higher interest rate, purchasing is sometimes better than renting, where the rents go up faster than the consumer price index.
- Non-qualified mortgages (non-QM). Non-QM loans allow borrowers to qualify based on alternative underwriting methods instead of traditional income verification and debt-to-income ratios.
- Debt-service coverage ratio loans (DSCRs). The debt-service coverage ratio measures the cash flow available to pay debt obligations.
- Equity lines of credit (HELOCs) or second trust deeds consolidation of existing debts.
- Mortgage agents should pursue private money loans for borrowers who are unable to obtain bank financing. Also, there are dozens of reasons that borrowers need privately funded loans, and the escrow periods are very short, resulting in a quick payday for the loan agent.
I hope you find value in this article. Please forward this to your friends and associates.