atomic_fungus (atomic_fungus) wrote,
atomic_fungus
atomic_fungus

#398: Now I feel better about myself.

You know, I make it a policy not to make myself feel better by denigrating other people. I'm not smarter or better than anyone else, and who knows what I would do if my circumstances had been the same as other people?

That said, however, I can't help but feel much better about me and my decision-making capability after reading this, which I found courtesy of pdb.

I have made some poor choices in my life, many of them involving credit...but nothing on that scale.

The guy admits that he utterly ignored the advice of the "gurus" who told him how to make money in real estate. He vastly overextended himself and ended up $2.2 million dollars in debt with no income nor any way even to service that debt.

Holy crap.

Of course, when I was working at Rockwell in Cedar Rapids, I was paying down my credit card debt. That was one reason I never seemed to have any money; I was dropping loads of cash onto my credit cards every month, trying to get out from under the revolving debt so I could try to buy me a house. And, in fact, I had gotten rid of one of them and was near finished with another when I lost my job. The rest, as they say, is history.

This guy, $200,000 of his debt is/was revolving--ie credit card--debt, and the rest of it was mortgage debt. Well, owning 8 houses in 4 states will do that. But $200,000 in credit card debt just scares the bejebus out of me.

Real estate is a tricky business. If you know what you are doing you can make scads of money; but if you don't, you can lose your ass rather quickly.

One of the things that scares me is the "interest-only loan". Your minimum mortgage payment is just enough to service the debt--pay the interest--with nothing going towards the principle.

This is all well and good if you are taking the money which would go towards the principle and investing it in stocks or other growth instruments. Assuming a decent rate of return you'll have enough money at the end of the mortgage period to pay cash for the house and have money left over. It's a great way to let your equity grow, rather than sit.

But that's a rather large "if". Not because of the stock market; it always rises, given enough time, and a 30-year mortgage ought to be enough time. No, the "if" comes into play when we talk about the people who are not using their money that way.

I am certain there are people who are living in a bigger house than they can actually afford and who are going to say, "the fuck what?" when the bank comes to them in 30 years and says, "Okay, your mortgage is paid off. Now you owe us $350,000 for the house."

(Of course, in 30 years, the property value should have increased enough for them to sell the house at a reasonable profit. The operative word here, however, is "should", not "will".)

I envision someone making a decent packet at this: invest the principle instead of paying it to the bank; at the end of the term, sell the property. The investments will have netted some kind of positive rate of return (if you invested wisely) and the house should sell for more than the mortgage principle, earning you a profit on the house. It looks sooooooo good on paper. But I don't trust it.

And this is just one little facet of real estate investing.

The guy's gurus were wise to say, "don't jump in all at once. Keep your day job and do this on the side until you've established yourself. Do one house at a time." Etc. And the guy ignored all that advice, and is now floundering.

And, by the way, he lied on the mortgage applications, which doesn't help matters any.

* * *

PDB seems to enjoy shadenfreude a lot more than I do. Maybe I'm too sympathetic. (He led me to the "MyBabyDaddy" LiveJournal community, which nearly gave me a stroke; and now this.) But you know, there is some comfort in knowing that there are people out there who are a hell of a lot stupider than you are.

EDIT:

I checked out the other outside links from pdb. "Less Urban" (the first one) contains a good summary of the cretinous Casey Serin's blog, so you don't have to wade through all his whining.

EDIT 2:

Unix-Jedi has left some good comments. Depending on what view you are looking at, click on the "comments" link.

I know little about interest-only mortgages. What I do know about them is enough to ensure that I never apply for one. Maybe someday I can be a big wheel and understand all that high finance stuff.

yeah, and I'd like a flying carpet, too.
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