Investing General Discussion

I am guessing you spend far too much time in threads like gamergate on this forum and think all colleges only offer bullshit degrees and the youth of today is stupid, entitled and doomed.

Every generation thinks the generation following them will be the end of the world.

Sanrith Descartes said:

I am guessing you havent spent time on a college campus lately?

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How old are you by the way? I'm 37, and I didn't buy my first house until after the crash (late 2008). So the people buying during the early 2000s are all older than me and weren't part of the generation you seem to be taking issue with. So how do you explain that?

I use math all day in work. I like math I can see and feel. Algebra for the sake of solving for the sake of solving did not appeal to me. I failed the first Algebra I took. I talked to the girl that got my through it the second time this week and the first thing she said was "I was telling my husband how great you were at math". I never got it except trig and geometry.

Home ownership is a multi faceted appeal for those that go for it. Some things don't ocme down to dollars on a spreadsheet. Just like a lot of things. As long as you know and are aware of it.

Khane said:

Owning a home certainly can and should be a better financial avenue than renting. If you plan on staying there for the life of the loan. This 5 and 10 year plan rhetoric is nonsense.

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Buying a house should be a codly calculated move indeed, but there are certainly a lot of instance in which owning a house for much less than the duration of the loan is good. What you should compute is how much renting would cost, how much buying would cost, how long do you plan to live in that place and the make your move. I don't know about the USA, but in France you're typically better off buying if you hold your house between 2 and 8 years depending on the location.

I've seen people being cut both ways, people buying and having to sell a few years later, losing 100k over what they would have renting, and I'm seeing people being stuck in a 1 bedroom for 10 years, now with a kid, and in that case they also lost well over 100k over buying which would have allowed them to buy a 2 bedrooms at this point.

Gurgeh said:

I don't know about the USA, but in France you're typically better off buying if you hold your house between 2 and 8 years depending on the location.

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What is the role of real estate agents in France? In the US the agents will generally take a fee of 3-6% of the value of the property at sale. Can be unreliable to expect to make back the transaction costs in less than 7-10 years here.

There was someone talking about the incredible state of lending in certain European countries in either this thread or the home buying thread recently. The terms seemed outrageous to me as an American.

Does France amortize their mortgages? There are so many variables to mortgage lending in the USA it's hard for anyone to really wrap their head around. Even today with historically low interest rates a buyer will end up paying double or more of the purchase price over the life of a conventional loan because of interest.

And how does that translate to the housing market debacle of the early 2000s (I graduated in 2004)

Captain Suave said:

What is the role of real estate agents in France? In the US the agents will generally take a fee of 3-6% of the value of the property at sale. Can be unreliable to expect to make back the transaction costs in less than 7-10 years here.

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There is a "buying tax", about 8.5%, and usually real estate will indeed take around 3% (up to 6% in the country where real estate is cheap), so you're taking a 12% hit the moment you're buying.
I just made the computation for the purchase I made exactly 3 years ago (appartment):
Downpayment 30k, maintenance 14k, taxes 5k, mortage 47k. Property value increased 15k (actually it's 35k, but let's assume a less lucky draw, 1.5% value increase per year), reimbursed principal : 33k, so the total cost for 3 years is 48k

If I had rented the same appartment it would have been 1400*36 rent (because I would have rented a 2bedroom, instead of buying a 3 bedroom, actually renting my appartment would have been at least 1600*36, but it's not fair to use a 4bedroom basis as I only have 1 kid, I would have rented a 2 bedrooms, but since I'm buying I have to buy something that can accomodate at least 2 kids), taxes 2.5k, so 53k

So in my case, in 6 months, if the price keep increasing at their current rate, I could sell and have been housed for 3.5 years for free, and after 3 years it definitely beat renting, especialy as I have 1 more bedroom, which came handy at times, so it's also more confortable.

Khane said:

There was someone talking about the incredible state of lending in certain European countries in either this thread or the home buying thread recently. The terms seemed outrageous to me as an American.

Does France amortize their mortgages? There are so many variables to mortgage lending in the USA it's hard for anyone to really wrap their head around. Even today with historically low interest rates a buyer will end up paying double or more of the purchase price over the life of a conventional loan because of interest.

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The mortage I'm getting for both my appartment and the one I'm investing in to rent are 25 years loans, the total cost of the loan (insurance included) is 25% of the principal. (Last one is borrowing 200k, 50k total cost over 25 years). You can't amortize your mortage on your primary residence, but under some conditions you somewhat can for a rental investment (I won't be able to do that for a couple of years it seems, but I'll get some other equivalent tax cut)

That being said, it's pretty clear to me that real estate in the US and in France are completely different beast.

A flat, easy to understand interest on principle? I wish...

Khane said:

A flat, easy to understand interest on principle? I wish...

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Yeah we had some seriously shaddy stuff going on in the 80's, now banks aren't really allowed to do anything but flat, fixed interest rates. Anyway you'd have to be retarded to get a variable rate loan, when the interest rate is around 1%...

My parents had some really funny stuff in the early 80's though, a loan in which they were only repaying interest at first, and repaying the principle only when they had paid all the interests. So after like 3 years, they still hadn't repaid a dime on the principle, they refinanced it to a fixed rate normal loan, but they did entirely lose 3 years of repayments. In the street I grew up as a kid, literaly 1/4th of the street bankrupted from those loans, and lost everything (shitty loans + inflation moving from 12% to 3% in 4 years killed them)

That being said, some people did manage to fuck that up recently, to win a few pennies they decided to borrow in Swiss Franc to benefit from slightly lower rates, but the Swiss Franc value increased 50% vs euro. GG.

Anyway that seem to be the recurring story, everywhere in the world, housing market is not that dangerous in itself, but the mortgage market on the other hand... Most people just don't understand at all that shit, so in that case I think the French approach is somwhat reasonable, you can borrow with a variable rate or in a foreign currency, or a bunch of shit, BUT if a judge believe you weren't properly informed of the risks, they'll nullify the interests. And it did happen a lot, so the banks now keep it simple OR make you sign so much disclaimers and read you so much stuff, that if you're not worried, you deserve whatever is going to happen.

Gurgeh said:

Yeah we had some seriously shaddy stuff going on in the 80's, now banks aren't really allowed to do anything but flat, fixed interest rates. Anyway you'd have to be retarded to get a variable rate loan, when the interest rate is around 1%...

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I'm not talking about variable interest rates. Come to America where you can get a fixed rate 30 year mortgage for ~4% and see if you understand what that actually means for your payments.

When you walk into a bank in France and get a 200k loan at 25% you know exactly what you're getting because the interest isn't compounded, it's a flat interest rate that is then spread over the life of the loan (as you explained it).

In America our interest rates are compounded monthly, and our payments are amortized, which leads to front loaded interest payments that are difficult to wrap your head around if trying to find reason and logic to take on a loan of this nature. Which why I was poking Sanrith about his "College Algebra" statement.

Look at how easy this is to grasp:


So when you calculate your actual total payment over a 30 year loan, even at a low 4% interest rate, you end up paying over 70% of the cost of the principle in interest. Which means, as you describe it, it's the same as walking into a bank in France looking for a mortgage and being told you can have one for ~70% interest.

Ah no, sorry the interests aren't flat, they're compounded. But at 1% it doesn't make much of a difference. Actually it's sorta half, the insurance is flat and the interest are compounded. Insurance is only around 0.5%, but in some cases it's getting more expensive than the interests themselves .

It's just a coincidence in my case that it looks flat, 25 years at 1.3% + insurance end up being 25% total.

What is flat is the total repayment each period.

Okay so it works the same way. But 1% is insane!

Gurgeh said:

purchase I made exactly 3 years ago (appartment)... the total cost for 3 years is 48k

If I had rented... 53k

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Makes sense given that relationship between rents and purchase price.

By contrast, where I am I can rent for $3,500/mo a house that would sell for $1.5-2M or more, requiring an all-in monthy payment of $7-9k+, a $400k down payment, plus maintenance. I'm paying less than the interest portion of that bill even at current low rates, don't have my assets tied up in real estate, can't get surprised by maintenance, and can move whenever I need to without losing 6% off the top.

When my kids graduate we can move to a smaller house a town over to a shit school district and buy in cash for the cost of a down payment here.

Friend of mine right before the downturn hit bought a house. He got approved for X amount of a loan. The house had to be X. 99.5% of X wouldn't do. I never understood that. If you live in certain places there are numerous houses for sale, but very little rentals. It's either buy or go elsewhere sometimes. The community I grew up in I looked at rentals recently for no particuler reason. I think they had 2. Lots of houses for sale.

I wish there was a move back to 20% down payment requirement. I loved it. You instantly had enough in your home if you lost your job the next day you could at least unload it. Take a pretty big haircut. This comes from seeing the early 80's petrochemical bust in Houston and New Orleans when I knew chemical engineers with 20 years experience working at Winn Dixie sacking groceries, and they were happy to do it.

Borzak said:

Friend of mine right before the downturn hit bought a house. He got approved for X amount of a loan. The house had to be X. 99.5% of X wouldn't do. I never understood that. If you live in certain places there are numerous houses for sale, but very little rentals. It's either buy or go elsewhere sometimes. The community I grew up in I looked at rentals recently for no particuler reason. I think they had 2. Lots of houses for sale.

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And that's for the "reasonable" people, what I'm seeing is often in the line of : Get approved for X, look for stuff around X, find out that 1.15X is extra shiny, look for another bank that will approve 1.15X... End up eating noodles for the next decade.