Need help in taking a home buying decision - Page 2

Hermes · #16 (**permalink**) 01-25-2008, 04:03 PM

Mynion,

please tell me when have I ever advised anyone to invest in a hedge fund or when have I ever given specific investment advice? You continue to accuse me of things that I have never done and I think it is sad for an intelligent person to do so. Again, that is my opinion.

You may not think it is realistic, sincere etc. and I accept your opinion and disagree with that. You favor to point everybody to get paid advice from the mutual fund industry (which is accepted as a good financial move). All I say is look at other places, other strategies and then decide. I have never suggested any specific investment instruments but simply question the existing one. Afterall, the investor has to pay for any professional advice and I think it is best to lay out all options and then let the individual decide what is right for them. Yes, I think that 17%, 30% is a bad joke as far as annual ROI is concerned. There are hundreds if not thousands and more companies that can accomplish that but none is part of the mutual fund industry.

Listen Mynion, the majority of professional investors do a very poor job at investments so the chances an individual investor will do good are even worse.

You say that investing their money in a mutual fund is something the majority can do. Fine, but what did they do? Nothing, they picked a fund, pay for advice. Period.

What speaks against having more funds and options to choose from?

Once again, all I do is give my point of view. I do applause the success in taking a poor product and sell it to the masses as a good product. It is like the carrot and the donkey. Keep the carrot in front of the donkey and the donkey will continue to move in the direction which you like.

Hermes · #17 (**permalink**) 01-25-2008, 04:21 PM

Gary, Gary, Gary...

if you want to get a loan from your bank you will tell the banker how much you earn from your job and list all the debt etc, standard procedure. The earnings from your assets are not their business (the only disclosure of those earnings should be made when you file your taxes).

Having said that all I suggested was the following:

If you want 20K as a down-payment earn it of your assets first (rather then just draw on your assets). Then use that and pay down 20K borrow 80K and you still have 30K in assets. The cash-flow from that will serve as a security. You have your job, and pay your mortgage like any other person but should something happen (and we all know something can always happen) you do not have to worry like all the other home-owners who chose to just take a loan because they could. You think it is not possible, fine. That is your opinion and you have the right to think whatever you wish but keep in mind that simply because you disagree doesn't make it wrong or impossible.

Assume they will loose their job? What then? What do you advice that person if three years later they need a new car? Another loan? More debt?

It is just an accident waiting to happen.

Gary, if we would give our ideas to 100,000 individuals I bet all but maybe 5 will follow your recommendation. That is what is considered the way to go and it is if you want to load up on debt. On the other side, if you look at 100,000 individuals I guess that the majority will be financially dependent, all but maybe 5...

.

Centuries ago the common accepted idea was that the planet was a plate and if you sail too much in one direction you will fall off and die. Any individual that questioned that was laughed at and considered stupid, maybe even locked up. We all know what happened to that idea. The majority was simply wrong. That is just one of many such instances in our history.

Your ideas, your approach (and the one of the majority, even professionals) is more then just outdated and a bad idea, in my own opinion.

Gary, do whatever makes you happy. Do whatever puts a smile on your face every morning when you look in the mirror. I have never tried or suggested that you change anything at all but let other indiviudals make up their own mind and decide what is best for them. We are here to offer our opinions and I have never done anything more or less then that.

stan3243 · #18 (**permalink**) 01-25-2008, 04:26 PM

Quote:

Homes are an ASSET not a liability.

...not when you consider an asset something that puts money in your pocket every month (CASH) vs. something that takes money from you ever month. Its a non-traditional definition, but one I've come to like. The equity in the home is an asset maybe...but that takes time to build in a declining market...not like the fantasy land of the last 5 to 10 years where you buy a house for $100,000 and flip it for $250,000 in a month or less.

Hermes · #19 (**permalink**) 01-25-2008, 04:32 PM

I agree with you stan3243.

That is the definition that best describes an asset, at least in my opinion. I think if you use that 'non-traditional' definition you are better off from a fianncial point of view then if you use the traditional definition.

An asset puts money into your pocket. Very simple and easy to understand.

Mynion · #20 (**permalink**) 01-25-2008, 04:48 PM

So...

by your definition, these items are not considered assets:
Jewelry
Paintings
Antique Furniture
Land
Automobiles
Boats
Equipment
etc.

None of these items "put money in your pocket each month", as stan defines. Nor do any of these items create cash flow, just by owning them.

Yet one of my clients has $7.5 million worth of the above. These should not be considered assets?

Are you nuts?

Assets do not have to have a rate of return. In fact, assets do not have to appreciate in value at all (although it is helpful if they do).

You shouldn't buy your home as an investment. You buy it to live in. But that doesn't mean that it is not an asset and therefore has no monetary value.

One of my niche markets is real estate investors. They absolutely love my firm. And guess what, every one of them has made millions of dollars in real estate. And every one of them will tell you that they buy ASSETS, and they use other people's money, which happen to be LIABILITIES. How come a real estate investor can consider a house an "investment", expecting it to appreciate, yet if the average person buys that exact same home and lives in it, you would not consider this same identical home an asset? If they have the same identical mortgage, how is the situation any different?

The facts are simple. A property that you own is an ASSET. The mortgage which is secured by the property is a LIABILITY. All ASSETS are not necessarily investments. All liabilities are not created equal.

*shrug*

GarySpicuzza · #21 (**permalink**) 01-25-2008, 05:53 PM

Hermes wrote:

Quote:

If you want 20K as a down-payment earn it of your assets first (rather then just draw on your assets). Then use that and pay down 20K borrow 80K and you still have 30K in assets. The cash-flow from that will serve as a security.

Okay, you're right, I get it now.
Please correct my math if I make an error.

If you invest $30,000 with a 67% Return on Investment after one year your earnings would be $20,100.

Now you have $50,100.

So now use $20,000 as the down payment for the $100,000 home and finance $80,000.

This strategy will leave you with $30,100 cash on hand and by the end of year two with another 67% Return on Investment you'll have $50,267.

Anyone with half a brain who can do fourth grade math should concur that with a 67% Return on Investment Hermes strategy is a winner year in and year out.

Hermes, I do have one question though.
How fast can you swim?

Hermes · #22 (**permalink**) 01-26-2008, 11:45 AM

You know Gary, you can be sarcastic all you want but that will not change anything besides maybe make your day a bit better (and that is pretty sad).

So, you think that 67% ROI is somehting that is not realistic or sustainable which is fine. Considering your backround (judging by your comments and 'advice') it does not surprise me. I would be surprised if you would agree with me. There are plenty of companies out there who consider 67% annual ROI a joke but lets not even go there.

Let me try to put this another way with the numbers that you have used here and ROI figures even the worst professionals should be able to accomplish or in other words ROI figures your mutual fund indusrty should be able to deliver.

I'll use the following...$30,000 in cash...$100,000 desired mortgage and a $20,000 down-payment. Let's assume that the individual accepts the fact that he gets ripped off on his ROI and his investments and knows that but has no problem with it because his trusted financial adviser thinks it is a good fund. Lets 'assume' tha average ROI is a very bad joke and the individual get 12% a year (is that ok by your philosophy or is that way too high as well?).

To keep this example as simple as possible I don't consider dividends which are reinvested, taxes etc.

So the $30,000 at 12% will earn $3,360 the first year. The individual adds to his savings (as stated on a previous post to this thread and lest just assume that only $500 are put away each month or a total of $6,000 a year).

So after year one the total cash equals $39,360 and at 12% during year two that will grow to little over $44,000 plus the $6,000 from savings. So the total know is about $50,000.

If the individual insist on taking out the $100,000 mortgage and pays down $20,000 which would result in a $80,000 mortgage he would still have $30,000 to invest with. Lets just say that including a higher interest on the loan plus all fees included the total amount owed would be $90,000 financied over 30 years or $3,000 a year. Even the very very low 12% will generate more then the $3,000 needed to cover the expenses.

All it took was two year...24 months. YOur suggestion was spend $20,000 get the home and you still have $10,000. Tht is not smart by any standard.

Yes, this is a very simple example but just shows how a different approach to the situation will keep you of problems rather then just blow money out of your asset column to purchase a liability.

Even though I have used piss-poor mutual fund return figures which even you (at least I hope) think can be achieved the majoriyt will never use an approach like the one above to purchase any liability. The majoriyt has been told that it is much smarter to load up on debt, use their cash for down-payments and get the home they want.

It is a choice the individual will have to make.

nathanw83 · #23 (**permalink**) 01-26-2008, 11:50 AM

20% down on a 15 year fixed conventional loan is one of the wisest decisions.

planner · #24 (**permalink**) 01-27-2008, 12:55 AM

We pretty much have the same dilemma. I have enough savings for now and I'm thinking of getting a house mortgage. My friends are not into the idea though, because however you put it, it's going to be one big heck of a liability. The thing is, I don't think I'll be able to own a house in a million years if I'd plainly depend on my savings. I personally think that it's a matter of managing finances and living a simple lifestyle.

Dru · #25 (**permalink**) 01-27-2008, 02:25 AM

Houses are just beginning to drop in cost. Wait a while and watch the market take some losses before you invest in that new home. Housing inventories are building and foreclosures are still on the horizon. These facts will force the market to adjust downward, some say 10-15%, I think it will be more.

GarySpicuzza · #26 (**permalink**) 01-27-2008, 08:22 AM

At this point in the conversation it's time to take the gloves offs.

Hermes wrote:

Quote:

So, you think that 67% ROI is somehting that is not realistic or sustainable which is fine. Considering your backround (judging by your comments and 'advice') it does not surprise me. I would be surprised if you would agree with me. There are plenty of companies out there who consider 67% annual ROI a joke but lets not even go there.

Thank you Hermes for confirming my math calculations. I wasn't sure if 67% per year each and every year guaranteed was too much. With that in mind a person with $30,000 cash should simply invest their money with you and pay cash for the home in just a few years.

$30,000 plus 67% equals $50,100 end of year one.
$50,100 plus 67% equals $83,667 end of year two.
$83,667 plus 67% equals $139,742 end of year three.

Wow, at the end of the third year your client could pay cash for a $100,000 home and still have almost $40,000 left in their pocket!

And since Hermes claims:

Quote:

There are plenty of companies out there who consider 67% annual ROI a joke but lets not even go there.

Let's go there....I hope 99% isn't too much or would that be a joke also?

$30,000 plus 99% equals $59,700 end of year one.
$50,100 plus 99% equals $118,803 end of year two.
$83,667 plus 99% equals $236,418 end of year three.

Whew, NOW at the end of the third year your client could pay cash for a $200,000 home and still have over $36,000 left in their pocket!

Should I use 118% per year or would that start approaching pie in the sky?
I'm just asking? By the way, can you post some ACTUAL client statements?

I just can't resist....using 118%!!!

Okay, $30,000 plus 118% equals $65,400. That's $35,400 dollars earned each and every year guaranteed for doing nothing more than investing your money with Hermes.

Hermes please stop me or correct my math if I get to the point where the sublime has met the ridiculous.

The word sublime means:
Impressing the mind with a sense of grandeur or power; inspiring awe.

The word ridiculous means:
Causing or worthy of ridicule or derision; absurd; preposterous; laughable: a ridiculous plan.

Hermes then wrote:

Quote:

Let me try to put this another way with the numbers that you have used here and ROI figures even the worst professionals should be able to accomplish or in other words ROI figures your mutual fund indusrty should be able to deliver.

Hermes you are confused with the facts and to set the record straight.
I have nothing to do with the Mutual Fund Industry.
I am an Insurance Agent (since 1985) who specializes in the Estate Planning aspects and products of the Insurance Industry.

Hermes · #27 (**permalink**) 01-27-2008, 09:04 AM

Gary,

because you don't know of any companies that can get more then what you may earn on your investments does not mean they do not exist. One of the leaders in business and investment news on TV reported plenty of companies that achieved tripple digit percentage returns last year after only 11 months so do not say it not possible or ridiculous in the markets to achieve that (I used a 12% annual ROI in the example which any mutual fund should be able to deliver).

Who ever said that the returns are guaranteed? Who ever said that the returns are the same every year? Why would you even want to pay cash for a home even if you would have it?

I hope that this is the last time I have to stress the fact that I all I offered was another way to approach this and I even used a lousy 12% annual ROI in the example, somehting that every single investor can get without any problem from their mutual fund investments (lower that to 8% and instead of waiting two year wait three years). You look at it one way, I look at it another way and the third person has a third opinion. Let the individual decide what's best for them.

You may think it is a ridiculous plan and favor the idea of heavy debt loads which may be paid off before retirement. Your plan or idea is way beyond ridiculous and part of the problems we currently face...primarily debt and housing related problems.

For the last time (I hope):

Do whatever you think is best for you. If you have clients that you advice on anything...do what you think is best for them.

Hermes · #28 (**permalink**) 01-27-2008, 09:30 AM

I agree with you Dru. I think prices will fall more then 10% or 15%. Home owners currently do not want to lower prices but that will have to change simply due to high inventories in the market. Foreclosers are very likely to increase in volume and it is not a bad idea to shop foreclosures for the new home.

Hermes · #29 (**permalink**) 01-27-2008, 09:31 AM

That is you opinion and I have to disagree with that. It may make you feel more secure but it is not a wise decision, at least not a wise financial decision.

GarySpicuzza · #30 (**permalink**) 01-29-2008, 08:12 AM

Okay, where was I?

Oh yeah, I remember 118% and climbing.

Click THIS link to read what the SEC says about Hedge Funds.

Quote:

The SEC can take action against a hedge fund that defrauds investors, and we have brought a number of fraud cases involving hedge funds. Commonly in these cases, hedge fund advisers misrepresented their experience and the fund's track record. Other cases were classic "Ponzi schemes," where early investors were paid off to make the scheme look legitimate. In some of the cases we have brought, the hedge funds sent phony account statements to investors to camouflage the fact that their money had been stolen.

That's why it is extremely important to thoroughly check out every aspect of any hedge fund you might consider as an investment. If you'd like to see an example of hedge fund fraud, click here.

...and just for fun be sure to click on the ACT NOW linky!

Quote:

GRDI Granite Capital Partners, L.P.: Private hedge fund which seeks to achieve capital appreciation through a portfolio devoted primarily to short-term trading opportunities in domestic equities. Returns over each of the past nine (9) years of 80%.

GRDI York Partners, L.P.: Established March, 2000. Using sophisticated securities trading strategy, has generated cumulative returns of up to 148% for investors.

GRDI Paragon Financial, L.P.: Registered hedge fund with consistent returns of up to 99%. Members have unique access to discounted prices of securities that can be sold for huge profits.

Sponsors