OPM - Other People's Money and Why It Doesn't Apply to You....

Many consumers banter about financial terms like "Opportunity Cost" without knowing what they mean.  The phrase "Other People's Money" is another phrase that likely doesn't apply to you.

In my posting Opportunity Cost, I pointed out how that phrase (and concept) has no application to the average consumer.  People like to think they sound smart when they say, "Well, I could have paid cash for this car, but what with the opportunity cost and all, it was better to finance."

It is an argument that makes no sense, as the guaranteed savings of not paying 5% or more interest is far greater than what you would get on a CD in the bank - and those are the comparable "investments", not stocks or some other speculative investment.

Opportunity Cost really only makes sense for businesses - where for them, borrowing money means freeing up more capital to pursue a business project that will generate income for them.  Buying cars and other consumer goods, on the other hand, is just spending money and there is no "opportunity" that you are taking advantage of by financing a car, other than an opportunity lost.

As one helpful reader noted, when you spend $25,000 on a brand new car, and then pay interest financing it (and please, don't tell me about "0% financing" - you really aren't that stupid are you?  The 0% financing gag means you forgo a $2000 rebate - there's your interest right there) the real opportunity you are losing is the chance to invest $27,000 and get some rate of return, and keep your old clunker in the driveway.

Not Spending provides the opportunity.  Spending and financing is not creating opportunity.  But car salesmen (and all salesmen) will throw out phrases like "opportunity cost" to confuse you and to get you to think that an odious new car purchase and loan agreement is not a stupid idea, but in fact a smart one.  It is not.

The same is true with the phrase "Other People's Money" - which was bandied about a lot in the late 1990's and early 2000's, as we all, well, spent other people's money.

The phrase is similar to opportunity cost and makes sense in a business context only.  The complete phrase was something along the lines of, "Always use other peoples money, instead of your own!" and what this meant was, when you are starting or running a business, you can leverage yourself and hedge risk by borrowing money ("OPM") and thus risk less of your own capital.

For example, you start a restaurant.  You borrow money from investors or a bank to pay for renovations and start-up expenses, and to cover the overhead for the first few months (to a year) until the business is solvent and profitable.   If you are successful, you pay back the investors their money, plus interest.  If you are not, you declare bankruptcy, walk away, and leave the lenders holding the short end of the stick.

Since it is a business bankruptcy, and not a personal one, you lose little in the aftermath, unless you did something really stupid like personally guaranteeing the notes.

For a businessman, who does not have emotional panic when the word "bankruptcy" is bandied about, this makes sense.  And it is how businesses work and how business is conducted.  And lenders know this, which is why interest rates on business loans are so high.

But OPM doesn't make any sense for you, as a consumer buying consumer goods or a personal residence with OPM.   All you are doing is borrowing and paying back, with interest, and there is little or no chance of making a "profit" on a Jet Ski or even your personal home.  As I noted, over time, you get back what you pay in to your personal residence, with the cost of insurance, taxes, repairs, and interest.  This is not to say that buying a home is a bad deal - far from it.   But the reason why home sales are tax-free is mostly because you really aren't making money on your home (But you do get that money back, at least).

On the other hand, if you can buy an investment property using borrowed money, and then pay back the loan from the rental proceeds and leave yourself a hundred bucks at the end of the month, you can use "OPM" to leverage a business proposition that you could not otherwise pay cash for.   Over time, as rents increase, you will make more and more money, and eventually, you pay off the loan and own the property free and clear, without having paid a nickel of your own money for it (and yes, I did this).   And presumably, it has appreciated in value by then.  You can make a lot of money this way, but of course it requires that you own and know how to use, a calculator.

So why do people in the cul-de-sac of Foreclosure Mews Estates all like to banter about terms like "Opportunity Cost" and "OPM" and the weekly cocktail parties and Barbecues?   Well, for starters, it is a way of trying to look sophisticated and worldly, and financially astute.   But moreover, it is a way that the suburban middle-class poor reinforce each other's normative cues.   Joe and Suzie homeowner might feel rightfully nervous about doing a cash-out re-fi on their split level, so they can pay off their credit cards.  But when their neighbor, after a few drinks, makes a joke about "OPM" they feel better - and even feel they have made a smart move and are now part of the smart set.   Hey, maybe now they can buy that Acura like their neighbor has, using their home equity line of credit.

But no, it is not a "smart" idea.   Using Other People's Money to just buy rapidly depreciating consumer goods is never a good idea.   And using the OPM mentality to bootstrap bad decisions is even worse.

Renting Money Versus Owning Money

Do you own money, or just rent it?

In my posting Owning Money, I put forth the proposition that money is something you should think about as owning rather than passing through your hands every month.

Owning Money is real wealth - making a lot of money and then spending it, is just upper-class poverty.  Real wealth is measured by how much money you have not how much you spend.

But most people never get this concept - and the media doesn't, either.  When the media talks about "rich people" they do so in terms of annual income not their net worth.   You can be a Millionaire, and yet make less than $50,000 a year.  And I'm living proof of that.  By the media's standards, I am dirt poor.  Yet by measure of real wealth, I am in the top 3% for the nation.  Go Figure.

One way to end up income-rich and wealth-poor is to spend a lot of your income renting money. 

The concept of renting money, of course, would seem alien to most people - yet most people do it.   Yes, when you borrow money, you are, in effect, renting it out.   Like an apartment that you rent, you never own it outright.  You merely have the right to use it.   You pay a monthly rent (interest) and then have the right to use the place.  When you vacate, well, you have to give the apartment back (pay the principal).   You never own anything, but pay extra for the right to use it.

Borrowing money is basically renting it for a fee.  You get the money, to be sure, but you have to give it all back, plus interest (your rent) on top of that.   So you can see, it is more expensive to rent money than to own it outright.

Because if you own money you can do fun things - like rent it out to other people, and make money that way.  It is a pretty sweet deal, as you basically use money to make money.  The chump paying rent, on the other hand, is just squandering what little he has, so he can pretend to own something for a while.

This is a profound shift in philosophy, if you think about it - and most of us don't want to think about it.  We are trained from birth to think of money as something "other people have" - rich people, not us.  So we don't bother trying to accumulate it, and in fact, resign ourselves to a life of perpetual money renting as we think this is all we deserve.

For the very poor, this mean renting money all the time - even for minor purchases.   A friend of mine needed a new dishwasher recently.   I told him that what I do, is look on Craigslist or in the local Pennysaver to find someone who is moving, who is selling a used machine a couple of years old, and then pay cash for it.  Maybe $100 gets you a nice working machine.

He looked at me like I was from planet Mars.   And, of course, he went out, bought a brand-new machine for $599 and financed it at 21% interest.  And why did he do this?  Because throughout his life, he financed nearly everything he owned.  No purchase was too small to put "on time" or on a credit card, to be paid off in increments, plus interest.

And this, to him, seemed as natural as breathing.

But it is not.  And if you want to accumulate wealth you have to break free of this mindset.  Some folks do, and we get mad at them and call them the evil 1%ers - or use ethnic slurs.  How is it "those people" are so smart with money and make so much, while we struggle to make payments?

Simple - they are the ones loaning us the money.  They respect money - they understand money - and they don't rent money unless it makes business sense to do so, such as investing in a business that will pay back the rented money with interest.

Only stupid consumers rent money to buy consumer goods which are worth less and less with each passing day.  Only consumers fail to "get it" with regard to money, and think that borrowing is a privilege and moreover a way of life.

There are a few things in life that are worth renting money for.   Getting an education - provided it is not overpriced and worthless.  Buying a house - that costs less to own than it would to rent.   Investing in a business, such as a rental property or your own company - provided it will make enough profit to pay back the loan and interest and leave a profit leftover for you.

Money-making enterprises are worth renting money for.  Buying crap for yourself, isn't.

Avoid renting money when you don't have to.

And think about borrowing in terms of renting money - it will seem a lot less attractive when you put it that way.

We Are Poorer Than We Think

We tend to think we are wealthier than we are - until we run out of money.

The last five years have been a wake-up call for many Americans.  Unfortunately, most Americans have chosen to hit the "snooze" button several times so far.

What we have learned, among other things is that we are not as wealthy as we thought we were.  And this has been like waking up from a long national bender, to the mother of all hangovers.

During the go-go 1990's and 2000's, a lot of middle-class people spend money like it was water - putting it all on credit cards and then refinancing their homes to pay it all off.  And I know this because all my friends did it - and I did it myself, on at least one occasion.

What did we spend it on?  Crap.  Utter crap.

We bought electronic gadgets, because they were "only a few hundred bucks" and the subscription service that came with them was a convenient $19.95 a month.  And over time, these subscription services added up, and of course we charged them on our credit card, to get those oh-so-important frequent-flyer-miles.

And we went to Starbucks and stood in line for a half-hour, for the privilege of handing over ten bucks to be sneered at by some pierced teenager, so we could drink a 1,000 calorie "coffee drink."  But no worries, we'll just stop by the gym (monthly membership, $100) to work it all off, right?

We were all so busy-busy, that we didn't have time to think about saving money.  After all, we were making so much!  You need a reliable car, right?   Might as well lease a new one!

And so on, and so on, and so on.

And of course, at the end of the month, when the bills came due, money was tight.  So we robbed from savings and put off that 401(k) so we could pay the bills for today.  Or refinance the house, one more time to pay off the accumulated debt.   We'd "catch up" later on, with savings and retirement, right?  Because that's a long way off, and we'll just work until we're 70!  Right?

Then the painful reality.   Jobs become scarcer and all that debt is now coming due.  And suddenly, we realize that we didn't save enough and we spent more than we were making.  Surely this has to be the government's fault, right?  Blame Bush.  Blame Obama.  Blame the Wall Street Fat Cats.  Blame Bank of America.  Blame the 1%ers.  Blame someone, anyone, but never ourselves!

What we realize today is that we weren't as wealthy as we thought we were - and this is a staggeringly painful lesson.   Let's face it - spending money in the 1990's was fun, wasn't it?  We never looked at prices of things, we just bought them.  More is better!  Spend!  So long as your credit card bill is "paid" (the minimum payment, towards the end) everything was OK, right?

But reality has other ideas.  And when you have to live on your income, you realize how little that is - and how much you squandered as a youth.

This is not a good thing or a bad thing - it is value-neutral.  Reality is like that - it just IS, and has no agenda for good or evil, better or worse.   Denying it, however, is a bad idea.  Embracing it, in contrast, is the path to success.

So, today, we realize that a lot of stuff we thought we could "afford" really was not affordable.  Your average middle-class person really cannot "afford" a smart-phone.  No, really, they can't.  Not if they are not fully funding their 401(k) plan.  And by that, I mean contributing at least 10% of their income (if not 15%) annually, to the plan.

And at first, this seems harsh and unfair.  We had it so good, we don't want to go back to spending less and not just throwing money around like drunken sailors!

But, living in reality has its own rewards.  Security for starters.  Let's face it.  The 1990's and early 2000's were a lot of fun - like the roaring 20's was a blast.  But every month, we worried about bills and the fact our debt-load was increasing (and our savings depleting or not even starting).  It was a stressful lifestyle, a level of stress we alleviated with an endless party.

Living on less may seem harsh, but a credit card balance of $0 has its own rewards.  Not owing anyone any money and not having to worry about "losing your job" or "how will I ever retire" are more comforting than a fleet of jet skis or 500 channels of cable TV.

What I have realized is that I am well off - but not as wealthy as I thought I was.  It is all-too-easy to take on the trappings of wealth by buying things and convince yourself you are "doing well".   But often having these things means having debt which means two things.  First, you don't really own these things - you are renting the money to own them.  Second, you really can't afford these things - you are sacrificing your future for the now - and a whole industry, the debt industry, will more than gladly help you in this regard.

We Are Poorer Than We Think - all of us.   We all want to live large and push our lifestyle to its very limits, in terms of debt and spending.   But it is not a rational or healthy way to live.

Spend less and live better.   Spend more and be miserable.   It is a choice and I have no sympathy for those who spend it all, and then complain that somehow life is unfair.

How Long Before Housing Turns Around? Long.

How long before the housing market turns around?  If history is any guide, at least another five years.

In the media you hear lots of idiotic things and also idiotic comments from citizens.  Many are in wonderment why their homes don't immediately turn around in value, and want to "blame" someone for the housing market not re-igniting its rocket.

But that is idiotic.  It would be akin to blaming the banks or government for the rain.  They have no control over it - despite what you may think.

Just as they had no control over the housing bubble.   Housing prices skyrocketed in the 2000's because 330 Million people believed they were going up.   Banks can offer funny loans all day long, it takes a boatload of consumers to think a simple house that sold for $150,000 a few years ago is now worth $500,000.

Market values are determined by markets - not banks or governments, period.

And this is why your government or the banks also can't re-ignite the housing market.  A market depends on the values and perceptions of the players, and for the next few years, most players are not going to be rushing off to pay too much for a house.

And that basically is the problem, right there.

And I can say this with authority, as we saw this same pattern after the last Real Estate Bubble, in 1989.

In case you weren't born then, or were still young and pissing your pants during those years (or like most Americans, just conveniently chose to forget), what happened in the years 1985-1989 was a run-up in Real Estate prices, in many markets on the order of 20-30% per annum, or more.

Stop me if this sounds familiar.  And no, the Real Estate bubble of 2009 wasn't "different" in any respect.  Bubbles are bubbles.  The Gold Bubble of today is the same as the Gold Bubble of 1982.  They are all alike, no one is unique.

Anyway, in 1989, the bubble burst - housing prices went up so far as to be unsustainable, and "suddenly" people realized they could not afford a house, and moreover, it was cheaper to rent.  And like a cascading set of dominos, the decrease in demand - albeit very slight - sent shockwaves through the market.   Condos and townhomes were hurt the worse- often plummeting by 30-50% or more.

In the next few years, the market was pretty quiet, even as interest rates eased (our mortgage, in 1989, had a rate of 11.625% if you can believe that!).  People were afraid and had a good reason to be afraid.   I had friends who lost what little they had saved.  One buddy had to bring $10,000 to the closing table to sell his condo.  He lost his down payment (they used to have those, back then) plus ten grand - close to $30,000 over all - enough to buy two brand new Camrys, back then.  For a guy in his early 30's, this was pretty devastating.

But it didn't turn around in 1990, or even 1991.  And 1992 came and went and the market was still stagnant.

In 1995, I bought a distressed property in Old Town Alexandria, for $210,000.  It was on the market for $425,000 and even at that price, didn't represent all the money the previous owners had thrown at it in remodeling.

Now bear in mind, this was six years after the meltdown of 1989.   And I was able to finance this on a "nothing down" deal at 9% (again, rates were much higher then than today!).

I bought my next property in 1997, a foreclosure sale that sold for $95,000, which was $35,000 less than the balance owed on the mortgage.    Now, this is 1997 we area talking about - and foreclosure properties were plentiful even then - we had bid on several at the time.

We bought our last distress-sale property in 1998 - a condominium that a Stewardess sold us for less than she paid for it.  Why did she do this?   There were no other buyers, period.

That was 1998 - nearly a decade after the 1989 bubble burst!

By 1999, things started to turn around.  We found ourselves being outbid on some properties, or losing them because we didn't jump on them right away.   And increasingly, we got nervous, as a lot of amateurs started getting into the game after reading articles in the newspaper about how home prices were going up.

In other words, it was amateur hour, with Joe Consumer doing what he does best - jumping on whatever the TeeVee said to do - buying Apple stock after  it went up to $600 a share, buying gold after it went to $1900 a share, buying houses after they shot up in value.   Buy High, Sell Low - the middle-class road to bankruptcy!

Why consumers do this, is beyond me.  When something goes up in value that is not a sign it will continue to go up but more likely that it is due for a decline.  The trick is to buy before it goes up in value, not after the major gains have been made.

But whether it is houses, gold, or Apple stock, what ends up happening is that yes, there is still some headroom left  in pricing.   So the commodity goes up another notch, and Joe Consumer says, "See! I told you this was a good deal!" and they start talking about plebeian houses being worth a Million, or Apple Stock going to $1000 a share, or gold hitting $5000 an ounce.

But of course, this is just fantasy.  And by 2005, I was getting very nervous and started selling out.  I sold some properties before the peak, some right at the peak, and some after the peak.  Overall, I did well, mostly because I bought in the 1990's - and not in 2005.

So what does this mean for this time around?

Well, there are three things that are different today than in the past.

First, housing prices went much further up in this bubble than in the last.  So we have a lot farther to fall, to be sure.  This may extend our housing depression for longer than the post 1989 depression.

Second, our demographics are narrower - we do not have a widening base of home buyers, but rather a cylindrical age "pyramid" (which is no longer a pyramid).   So demand for "first time home buyers" may be slack (and you are still against immigration?  Brilliant!).

Third, our interest rates are at staggering all-time lows - which could jump-start the process, provided you qualify for a loan (and those of us who got out early, qualify, don't we?).   However, a smart investor isn't going to buy a place unless he is convinced the price is not going to drop further, and moreover that he can make money from it - rent it for more than the carrying costs.

In many markets, even at sub-4% interest rates and skyrocketing rents, this has yet to happen.

And that is one reason I am staying out of the market.  There is a duplex for sale here on the island that appears to be attractively priced (but needs a lot of work).  It could be made into a vacation rental and rent easily to vacationing Canadians by the month in the winter, and local good-old-boys by the week, in the summer.

But cranking the numbers on it, I can't see it being that profitable, even at an "attractive" price.  And the local investors seem to agree - staying away from the property in droves.   It would have to drop another $30,000 to $50,000 before I could see myself buying it.

And frankly, at this point in my life, the last thing I need to be doing is gambling a quarter-million dollars on a risk-taking venture.   And I suspect a lot of others in this country feel the same way, as they age.

And there will be more bargains on the market in the future - a lot of people are foolishly trying to "hang on" to upside-down properties, often cashing in their life's savings to do so.    They will eventually give up, and, utterly broken, let their homes go to foreclosure in 2014 or 2015.   That was, of course, their choice.  Myself, I would have bailed out from the get-go, before ever, ever touching my life's savings to save a house.

It has been about three to four years since the market crashed (depending on which point in time you want to pick as the nadir  - 2008 or 2009).   I suspect that, even with ultra-low interest rates, we will be seeing foreclosure sales well into 2012 or 2013 at the very least.  And I suspect we won't see big gains in Real Estate prices until about 2018 or 2019, if history is any guide.

So, if you are cashing in your 401(k) to make mortgage payments on your house, on the premise that "any day now" the demand for end-unit townhomes in Foreclosure Mews Estates will skyrocket, think again.  You will have the better part of a decade to wait.   And cashing in your savings to keep a possession is idiotic.  Completely idiotic.

Tchotchke Up Your Yard!

Tchotchke Up Your Yard!

It is tempting to do "home improvements" once you buy a home, but don't get carried away, is all I can say.

Why?  Because such things can be time-bandits and money-sinkholes.   And for the most part, they don't make your house look better, just "busy".  In fact, to sell your home, your Real Estate Agent will likely advise you to take down most of it.

The problems with yard tchotchke are multifold:

1.  Makes the house look "busy" - a cluttered yard looks disorderly and distracting:  It ruins the curb appeal of your home.  A clean, uncluttered look is more pleasing to the eye than a Disneyland type approach.

2.  Creates maintenance - an item to mow around, weed whack, clean, maintain, renew:  For every item you add, you add another "thing" to maintain.  You go away on vacation, and you come back to find that everything needs maintenance.  Pretty soon you either stop going away, or it all starts to look like hell when you get overwhelmed.

3.  Adds no value to the home, often detracts:  If you want to sell your home, you will likely have to de-tchotchke your house to  make it look better.  Otherwise, you have to hope the home buyer can see through your collection of garden gnomes and cement donkeys.

4.  Costs an enormous amount of money, over time:  Each trip to Lowes or Home Depot is another $100 on your credit card.  Before long, you've racked up a mountain of debt - or spent money that you could have wisely invested or used to pay down debt.

How do I know this?  Experience.  We tchotchked up our yard in Virginia with everything from a swimming pool to a koi pond, as well as extensive gardens, sitting areas, accessories, fountains, and statuary.  We spent thousands - tens of thousands - of dollars doing this.  And eventually, it all fell to the bulldozer, which was a good thing, as trying to sell such a busy house would have been a nightmare.

Yes, people look at a house with an elaborate garden and think of one word:  weeding.

And they're right.  Beautiful gardens are a ton of hard work - cutting down and pulling weeds, pruning hedges and shrubs, mulching and planting and watering and fertilizing - the list never ends.

The busier you make your house, the more time you commit yourself to maintaining busyness.  And you may decide, down the road, that you'd rather do other things with your time.

I am confronted with this at our new house.  The yard is starting to look OK - not a sea of sand and dead grass anymore.  And I cut down a lot of vines and pruned the hedges and shrubs.

The temptation is to "add more" - a new shrub or hedge, or some other "yard feature."  But each additional thing costs money and adds to your labor pile.   Cutting back vines and pruning shubs is hard, sweaty work.  And just because I am "done" with it doesn't mean I won't have to repeat the project next year.   Adding more "stuff" to the pile is adding more labor to the list.

Yes, I know, some folks have very "boring" houses, with few plantings and few trees.  But I can appreciate why they do this, particularly as they get older.  We have at least a dozen mature trees (which means leaves, pine needles, pine cones, and pruning) and dozens of shrubs.

I think that is more than enough.


And when the temptation comes to say, "gee, let's add a....."

I just say "No."

Fredrick Law Olmsted never used cement donkeys!

The Problem With a 30-Year Mortgage

The 30-year mortgage is a tacit admission that you will likely never own your home.

As I have noted in earlier posts, the 30-year mortgage is a relatively modern invention, not coming into being until after World War II.  Prior to that time, most mortgages were about as long as car loans were today, with "extended" 10- and 15-year notes coming into being only during the Great Depression.

As a result, houses were smaller, cheaper, and fewer people owned them.

Today, houses are larger, more ornate, more expensive, and still very few people actually own them.

When we were in the Real Estate business, the number bandied about by Real Estate Agents was that the average homeowner moved "every five years".   This may have been a bit of an aggressive number, but for some markets, such as Washington, DC, probably about accurate.   This link has an very excruciatingly detailed analysis that posits that the average is about 14 years, nationwide, but only 11 for first-time buyers.

What is clear from this data, however, is that very few people are staying in a home for 30 years and paying off their mortgages and then owning their homes, free and clear, in retirement.  And with the orgy of refinancing that went on in the 1990's and 2000's, many homeowners gave up entirely on the pretense of paying for a home, and just assumed mortgage debt was a permanent thing.

Is this good, bad, or value-neutral?   I think bad, for a number of reasons:

1.  Most folks end up paying more to "own" a home than they would to rent it.  Even in good markets, home prices are such that the cost to own often exceeds the cost of renting a comparable home.  Here on the Island, for example, to rent my house would cost about $1600 a month, plus utilities.   Cost to own, if financed over a 30-year mortgage, would be at least $2500 or more.

2.  The first 10 years of a mortgage are mostly interest payments.   When you sell your home at the 14 year mark, you make a banker very happy.  He collects all those mortgage payments as nearly pure profit and then gets nearly ALL the money he loaned you, back.   You paid down little, if anything, in terms of the balance.  The bankers make a lot of money, you never get ahead.

3.  When you sell your home after 10-15 years, you likely buy another house and get a new 30-year mortgage, re-setting the clock and starting all over again paying tons of interest payments.  After 30 years of owning a number of homes, you have paid a lot of interest, but not a lot of principle.  The banks have made a ton of money.  If you have any equity at all, it is from appreciation of the property.

4.  There is a temptation to refinance, particularly in the last two decades, as rates have dropped.  And each re-fi keeps resetting this 30-year clock, which is why many homeowners of our era adopted the mantra, "I'll never pay off my mortgage (hee-hee)!"

5.  Tied in with #3 is the temptation to take "money out" in a refinance to pay off other, higher-interest debts, but re-amoritze them over 30 years.  This eats up any appreciation gains the homeowner might have had.

6.  If property values decline, the entire things unwind in a hurry.  Suddenly, you are "upside-down" on a house, and it appears you will never be able to pay off the balance or be able to sell the home for the balance owed.  You are stuck "renting money" for however long it takes before you can sell the house for what is owed, or just throw in the towel to foreclosure.

Even if you don't do a cash-out re-fi or become a "serial refinancer" (as one young attorney gleefully described herself to me), you still end up paying a lot in interest, over time, if you move every five to fifteen years.   You never end up owning the home, just renting the money to buy it, over time.

Why is this a bad thing?  Well, for starters, it means you are taking your income, and spending it in terms of cash-flow not in terms of cash.   So instead of owning anything, you are just making payments, perpetually, to be allowed to stay there.  It is like serially leasing cars - you stop paying, and you are walking.  You never end up owning anything or accumulating wealth - just dissipating it.

Well, why is that such a bad thing?  Well, eventually, you will stop making money - you will retire, or get laid off, or fired, or lose your job.   In this modern economy, you can count on that.  And signing up for 30-year obligations based on the idea that a "job" will pay for it, is kind of dumb, considering most "jobs" last about a decade, if that.

Again, this whole 30-year mortgage concept is not something cast in stone and handed down from Moses, but rather a modern invention, and like a lot of modern inventions (such as credit cards) we are only just now seeing what the down sides are.

To be sure, one reason so many people signed up for this deal was the dangling carrot of tax deductions.   We all felt we could lower our taxes if we borrowed money to buy a home.  But for the most part, the savings in taxes are dwarfed by the additional cost of interest.  You cannot deduct your way to wealth, period.

Does this mean you should never get a mortgage?  Don't be stupid.   For most folks, it is the only way they will be able to afford a house.   And at today's interest rates, money is cheap, if you can qualify for the loan.

But again, you need to stay in a house for five years just to break even, today.  If you are not planning on "settling down" for at least a decade, home ownership could be a wash.  It might be smarter to buy a smaller house, learn to live with less, and get a 15-year mortgage and end up owning your home outright.  Better to own a smaller home outright than to have paid interest for 15 years and hardly made a dent in the mini-mansion (and then lose it to foreclosure).

Not only that, but if you outgrow that house, you may be able to rent it out and have a cash-cow investment working for you, instead of a ball-and-chain around your neck.  I dunno, it worked for me - I made a ton of money renting out positive-cash-flow Real Estate (as opposed to negative-cash-flow speculation!).

I think the thing to bear in mind is that a mortgage is debt and not like a rent payment.  The goal should be to build equity over time, not merely add to the debt pile.   And stressing yourself financially, in order to be able to have fancy stuff, makes no sense at all.   When the shit hits the fan, you want to be able to survive the downturn.   Buy a less house than you can afford and only as much house as you need.  And avoid the temptation to throw money at a house in "improvements" and crap - they don't add much value to it - if any.

Taking on debt for a fancier place to live makes little sense.   On the other hand, that debt load could be put to good use on an investment property - and by that I don't mean a buy-and-flip house, but something that can be bought and rented out for more than you pay, each month.  And in the coming years, some bargains may appear on the horizon like this.   And when that happens, you want to be the guy who has cash-in-hand, or at least the ability to borrow.

And if that isn't your bag, well, use that money you would have spent on mortgage payments on granite counter-tops to fund your 401(k) and save for the future.  Accumulating wealth means not accumulating more and more debt.

When you sign the papers on a 30-year note and you think to yourself, "Gee, this seems like an onerous obligation!" you are not being "weird" but in fact, rational.   Many folks jump from house to house - going bigger and fancier as they make more money, convinced they can now "afford" a fancier house.  All they are doing is increasing their debt-load and decreasing their net worth - while at the same time, locking themselves into some high cash-flow requirements.

This is a choice, not an obligation.

Relisting on eBay

I listed this spare X5 rim on eBay for $100 (a $400 dealer part).  No takers.  After re-listing five times, and lowering the starting price to $50, it sells for $145.  Go Figure.

If something doesn't sell on eBay, don't panic.  Just re-list.  You can list up to Fifty (50) items a month on eBay, for free, provided that:

1.  They are in the auction format (not buy-it-now)
2.  There is only one photo (other photos are extra)
3.  It is for 7 days only.

So, if you don't sell an item, just re-list it - there is no fee for re-listing the item.

Of course, eBay wants a 9% "final value fee" which will be about $15 on this transaction.   But, I made a "second chance" offer to the next-highest bidder ($140) for one of the other rims (I have four).  I paid $170 for the set, used up the rubber for 30,000 miles, kept the best four of the eight rims I have, and if I sell the remainder for $140 each, well, I stand to clear a few hundred dollars on the deal.

But sometimes, you have to wait for the right person to come along, and sometimes, offering for a lower price gets bids - and once something gets bids it takes on a life of its own.  This wheel languished unsold for $100 for over five weeks.  I lower the price, and ironically, it sells for $145.

When in doubt, re-list it.  It costs nothing and takes only a click of the mouse!