mortgages - good debt and bad debt, property ownership / renting for a liftime

John C Daley wrote:Steve, I have a different view of finance.
At the very start I mentioned that good debt is something that gets you into a home at less cost than rent.
Yes you pay interest and over time you may have paid a lot, but your debt will no longer exist and you will have a home.
If you paid rent while you tried to save for a house, all that rent cash has gone, disappeared, gone up in smoke.
And you still dont own anything.

I understand that, but you are also looking at it from the traditional rent or buy, only sort of way. With permiculture, the problem becomes the solution. In this case, if a morgage or rent payment is the problem, don't rent or get a mortgage. Think more creatively, and more importantly... know having a humble dwelling for a year or two is okay; it won't be forever.

For someone starting out, it is a bit easier because they might not have kids yet to worry about, Still, can someone stay with family or friends, know someone with a camper to use or buy even if it is used, have modest housing while using facilities for proper hygiene at work, etc, all to sell what is absolutely non-essential, and to save for a piece of land? If the economy shapes up the way I think it will, saving NOW will really put someone in a really good spot in two years as house and land prices tumble giving them a lot for their due diligence.

For an established family that wants out. What a GREAT time to get out. Houses are holding their value, so a family can sell their current home high now, and take that money and buy some land and live modestly in a distressed property, or a used camper until they can build their home. There is no time like the present to do this. The realtors just told me, 30 acres I own across the street with my vacant grandmother's home is only worth $85,000. A family in Mass could sell their home for an elevated price now, pay off their mortgage and then use the extra equity to buy a piece of land like I have. They could then, fix up the house and live in it, or put a cheap used camper on it and live in that until they started their WOFATI or Earth Berm house or whatever. That is completely doable TODAY! Out of the rat race and mortgage free by spring. And I am NOT alone in having a vacant house and a small tract of land. They are everywhere!

Does it sound too good to be true? Not at all, it just takes understanding; its going to be glamourous living in either scenario at the start. It's not going to be fun living in a spare bedroom of your sister and her annoying husband, or its not going to be fun cramped with kids in a used camper, but this is the point: if a person or family puts up with less-than-ideal conditions at the start, they can spin out of the housing vortex of nonsense and be in a much better position later in life.

I know this personally. I lived out what I just typed and I am better off because of it financially. My co-worker did the latter scenario with his family of five, and is fiscally sound. It just takes being humble enough, and brave enough to do it.

Sorry for the double reply, but I just want people to know that I am not some super-human person that somehow by sheer grit, rich parents, or amazing intellect managed to reach debt-free status. NOT AT ALL.

I have been taken to court by a credit card company because I could not pay off a $2500 debt. I have been divorced three times with one wife cleaning my house completely down to the bare walls. I have lived in two small houses. I have had to buy a headstone and cemetery plot for my son. Life has not been great for me at times, in fact I dare to say it has sucked probably worse than most people lives have.

But getting to being debt free does not mean YOU have to climb hand over hand over some rope bridge that is 500 feet in the air, with crocodiles swimming at the bottom should you fall to get there, and only the very fortunate can somehow get to be debt free. It is 2022 there are a lot of safety nets out there. But a person does have to take some risk, do some things that average people just are not willing to do. It takes some humility, some less than perfect living situations to position yourself into a better spot. But YOU... yes you... can do it. It just takes realizing if 85% of Americans do not even have $1000 in the bank, you DON"T EMULATE THEM.

News Flash: It is not working for them, so don't listen to them.

As my joke goes: What do you call a Layer who makes $250,000 a year and spends $300,000? BROKE!

Be brave. Think outside the box. Try and work with your partner to think of better solutions then writing a check for anything. Some things people need, food, housing, electricity and heat... yes, all those things, but you don't have to get them the same way as everyone else. You are unique, and your situation is different, use different to mean better down the road for yourself by using what you do have.

People know debt is generally bad, what they don't know is that they have far more choices than what they realize, and somewhere deep down inside them, they have the tenacity to buck the American system of fake happiness and be debt-free. Not for a few select hardy souls; but for EVERYONE reading this.

YOU CAN DO THIS

John Wolfram wrote: I suspect there's going to be a lot of resistance to people giving up these super low rates, which may be part of the reason why it seems like home sales have jammed on the brakes even though rates are still lower than their historic averages. (https://fred.stlouisfed.org/series/MORTGAGE30US)

You are right, and industry has found a way around government mandates on the higher interest to stave off inflation (which is rampant anyway).

The way they did it is by leveraging the only thing the government cannot do: predict the future.

If you buy a house today, yes you must pay 5.9% interest for the house, BUT it does not stay there. In 365 days it goes to 4.9%. Then 2 years from that date it goes to 3.9%, etc, so it is a declining per year interest rate if you opt for that type of loan.

This really works out well because it keeps the people that stay up on their mortgage payments from having to refinance when the interest rates drop in a few years.  It is just set in the loan from the onset. Kind of brilliant for the industry to come up with that and really mitigate governmental interest rates. So while buying a house today seems crazy at today's interest rates, its only for a year, then they start dropping.

Its kind of nice for everyone. The market is good for sellers, but really not as bad as it seems for buyers either.

This video disects an "infomercial" from post WWII as the USA was expanding into a car-centric society. Starting around 20 minutes in is the host's opinion of what a bad idea it is to go into debt to build roads - whose maintenance costs are generally much higher than the initial building costs - was hugely detrimental to a city's long term sustainability. In many ways, being allowed to go into debt to build roads, aggravated urban sprawl and removed living accommodations from many city centers. There are a number of places where huge amounts of money are now being spent to remove elevated and multi level highways that have become liabilities.


We can work on reversing this in effective ways. In Calgary, Alberta (Canada) a company that realized they had too many multi-story office buildings they couldn't rent out, have renovated them as apartment buildings (with some government subsidization based on improved efficiency and changes to zoning regulations).  This is a step towards recreating walkable cities. It's an oportunity to replace "bad debt" with "good debt" which can eventually turn into "no debt", which is part of my definition of "good debt". A debt that can never be retired, or can't be retired in a reasonable time frame, is part of the defining characteristics between the two types.

I hear people banging on about Banks, here is a thought!
Money in the bank is like water in a tank in the desert, you are not paid to store it,
but its handy in a drought.

John C, I'm a saver too, and that's a good thought. Note however that bank accounts are often storage tanks with slow leaks built in. Fees, charges, obscenely low yields, and all manner of utterly shameless shenanigans. Choose your tank carefully.

I agree with you Douglas, but I was assuming people would consider those facts prior to banking it.
Money under the mattress does not earn interest either!

Jay, I am surprised to see this quote

too many multi-story office buildings they couldn't rent out, have renovated them as apartment
buildings (with some government subsidisation based on improved efficiency and changes to zoning regulations

I do not understand why people think its great for Governments to subsidise companies for any project, unless the Government has equity.

Hi Harry,

Welcome to Permies.

I have chosen to read all these posts again, just to recall all the points.
The bit I do not understand  or get my head around is the issue of 'interest'.
To me its much the same as the attitude some people have with donuts, they focus on the 'hole' in the donut and forget about enjoying the benefit of the donut they chose to purchase.

7. The ONLY way to win the financial game, is to not play.
Like gambling at a casino, the odds are stacked in favor of the house, and while you might win a hand, in the long term, the casino will win in the end.
Its the same with lenders. Don't play this financial game that is stacked against you.
To not play is the only way to win.

I have been drawn back to this topic by others liking my earlier comments.
I feel I need to explain why I disagree with the above comment from Steve.
The first issue is that if planned, debt kept within the 'rules' I have spoken about earlier will never assume the role of gambling, lenders cannot call the tune and you
can reap a benefit from 'discipline'.