Secondary bulldozer thread discussion

[Dan]

At this point, I'd say failure to accept the risk is no longer an option. <....> Banks are funny animals. They are, and have always been, mostly predatory (or at the very least parasitic) creatures. However, they are entrenched, probably necessary, and the reason for, root cause of, and practical beneficiary of almost all laws financial. So I suspect this guy's behavior is going to have both short and long term consequences. Imagine, if you will, the scene as this guy walks into another banker's office several years in the future, and sits down and asks for a car loan. <....>

... Provided he isn't in jail.

[dragonbite]

Last year my wife and I were looking at a foreclosed home in town.

The bank, when they found out we were looking at it, dropped the price a little further since it was before Winter and they've had it for a couple of years.

Unfortunately, they don't want to commit to anything until you have cash in hand, and there was no way we could do that with our current mortgage (plus it would have strapped us of any cash for a looong time).

Which is sad because it was a beautiful house (but needed some work) in a beautiful neighborhood.

[Dan]

Hmmm.

Let me illustrate what I mean about predatory. Up until a few years ago, we enjoyed the somewhat dubious privilege of owning/renting-from-the-government a home and property. (If you really think you actually own your house, try failing to pay your property taxes and/or your homeowners association dues.)

By the way, home ownership is highly overrated. We have since remedied that situation.

However, before that came to be, we had to buy both land and house. It was an educational experience. I learned the following.

• Realtors do NOT like to show you properties which they think you can actually afford.
  
• Once they are fully engaged in their sales behavior, attempting to up-sell you, it may actually become necessary to reach over and shut the car ignition off -- while the car is moving -- in order to break them out of their sales-trance induced confidence that they know what you want better than you do.
  
• Both realtors and their friends in the finance company/bank office will not believe you the first time you tell them you actually do not need to fill out a credit application to buy a house.
  
• Even after they figure out -- and accept -- you are going to pay cash, they will still spend the better part of an hour trying to talk you into a mortgage or a home improvement loan, "just to keep you from completely trashing your credit rating."
  
• They will do the above whilst shaking their heads at you like you are an errant child hell-bent on the biggest folly since Chamberlain declared the "problem with Germany" to be peacefully solved.
  
• Both of the above will panic and pout like a whipped puppy when you finally end up sighing in frustration, and putting your pen and cheque book back in your pocket, and standing up and fetching your hat.

[dragonbite]

Originally Posted by Dan

Hmmm.

Let me illustrate what I mean about predatory. Up until a few years ago, we enjoyed the somewhat dubious privilege of owning/renting-from-the-government a home and property. (If you really think you actually own your house, try failing to pay your property taxes and/or your homeowners association dues.)

By the way, home ownership is highly overrated. We have since remedied that situation.

However, before that came to be, we had to buy both land and house. It was an educational experience. I learned the following.

• Realtors do NOT like to show you properties which they think you can actually afford.
  
• Once they are fully engaged in their sales behavior, attempting to up-sell you, it may actually become necessary to reach over and shut the car ignition off -- while the car is moving -- in order to break them out of their sales-trance induced confidence that they know what you want better than you do.
  
• Both realtors and their friends in the finance company/bank office will not believe you the first time you tell them you actually do not need to fill out a credit application to buy a house.
  
• Even after they figure out -- and accept -- you are going to pay cash, they will still spend the better part of an hour trying to talk you into a mortgage or a home improvement loan, "just to keep you from completely trashing your credit rating."
  
• They will do the above whilst shaking their heads at you like you are an errant child hell-bent on the biggest folly since Chamberlain declared the "problem with Germany" to be peacefully solved.
  
• Both of the above will panic and pout like a whipped puppy when you finally end up sighing in frustration, and putting your pen and cheque book back in your pocket, and standing up and fetching your hat.

Ok, so "cash in hand" means guarantee from a bank that they will loan you such money.

I don't have to worry about ever being in this situation because I'll never have that much cash (unless, of course, I win the lottery).

[Dan]

Originally Posted by dragonbite

Ok, so "cash in hand" means guarantee from a bank that they will loan you such money.

I don't have to worry about ever being in this situation because I'll never have that much cash (unless, of course, I win the lottery).

'Tain't necessarily so. On both counts. On the first, oddly enough, the more you eschew credit, the worse your credit rating gets. Go figure?

However, we figured out early in the game (more years ago than I care to remember), that every single default and/or repossession happens to somebody with a mortgage or a car loan. And I absolutely despise the idea of paying for the same thing twice.

Ergo, we rented, (sometimes in less than stellar neighborhoods) drove "pre-owned" clunkers, (several of which I assembled in the driveway from assorted parts) used dinosaur-age home-built computers etc. -- and generally did without a lot of stuff that was deemed a part of the "American Dream" for a lot of years. Much of it we're still doing without. After a while, the heat of Possession Fever and Stuff Lust dies down a bit, and you start to understand that in reality, you don't actually own your things. They own you.

So we don't have a 4000 sqft brick and glass edifice in the 'burbs, a 55 inch LED TV, and I don't drive a brand new truck. Probably never will, even if I was sitting in two~three comma country. And therefore I agonize long and ad-nauseum over silly little things like a new $300.00 ~ $400.00 pre-built computer.

<....>

[dragonbite]

Originally Posted by Dan

'Tain't necessarily so. On both counts. On the first, oddly enough, the more you eschew credit, the worse your credit rating gets. Go figure?

However, we figured out early in the game (more years ago than I care to remember), that every single default and/or repossession happens to somebody with a mortgage or a car loan. And I absolutely despise the idea of paying for the same thing twice.

Ergo, we rented, (sometimes in less than stellar neighborhoods) drove "pre-owned" clunkers, (several of which I assembled in the driveway from assorted parts) used dinosaur-age home-built computers etc. -- and generally did without a lot of stuff that was deemed a part of the "American Dream" for a lot of years. Much of it we're still doing without. After a while, the heat of Possession Fever dies down a bit, and you start to understand that in reality, you don't actually own your stuff. It owns you.

So we don't have a 4000 sqft brick and glass edifice in the 'burbs, a 55 inch LED TV, and I don't drive a brand new truck. Probably never will, even if I was sitting in two~three comma country. And therefore I agonize long and ad-nauseum over silly little things like a new $300.00 ~ $400.00 pre-built computer.

<....>

Yeah, Credit Rating is "use it or lose it".

Every single repossession or default happens to somebody with a mortgage? Isn't that a no-brainer? I mean, how do you repossess what you don't already "own", like when you rent?

I understand the rest of your post though. We don't go out and buy things; our house is 1/2 the size of the one in the story, we don't have cable TV service, our TV is from the church's annual flea market/auction (where there are some GREAT deals to be had!), and our cars are second hand (though not clunkers) and the only computer I actually paid for was in 2000 and it was my first computer.

I see people with fancier cars, shinier gadgets and going on trips and wonder "how do they do it" or "what Peter are they robbing to pay Paul?". Envious, yeah kinda.

In return we've been able to pay off our bills with little or no interruption and have not been threatened with repossession, etc. *knock on wood* hopefully nothing happens with employment to threaten that!

One thing that helps with keeping purchases down is having to get approval from the CFO (Chief Family Officer).!

[Dan]

Every single repossession or default happens to somebody with a mortgage? Isn't that a no-brainer? ...

Yeah. You'd think so. But you'd also be truly amazed at the number of people for whom that is an epiphany. <....>

I see people with fancier cars, shinier gadgets and going on trips and wonder "how do they do it" or "what Peter are they robbing to pay Paul?".

That would be the fantastical powers of the twin Thing-Gods. Visa and Mastercard. (And/or playing fast and loose with the company pension fund <....>) I still remember when I first realized what those evil little buggers were all about. We were driving down a river canyon dirt road in a round fendered Dodge pickup. The AM radio was fading in and out with the passing side canyons when a mastercard ad came on after the news. I looked over at my brother and said, "Whoa! Oh, man! You could get sooooo seriously screwed up using one of those things!"

It's pretty telling that when the companies who created them got started, they had to look for a state to base out of that didn't have any anti-usury laws.

One thing that helps with keeping purchases down is having to get approval from the CFO (Chief Family Officer).!

Aye. Around here she's known as, The War Department. <....>

[John the train]

Originally Posted by Dan

'Tain't necessarily so. On both counts. On the first, oddly enough, the more you eschew credit, the worse your credit rating gets. Go figure?

However, we figured out early in the game (more years ago than I care to remember), that every single default and/or repossession happens to somebody with a mortgage or a car loan. And I absolutely despise the idea of paying for the same thing twice.

Ergo, we rented, (sometimes in less than stellar neighborhoods) drove "pre-owned" clunkers, (several of which I assembled in the driveway from assorted parts) used dinosaur-age home-built computers etc. -- and generally did without a lot of stuff that was deemed a part of the "American Dream" for a lot of years. Much of it we're still doing without. After a while, the heat of Possession Fever and Stuff Lust dies down a bit, and you start to understand that in reality, you don't actually own your things. They own you.

So we don't have a 4000 sqft brick and glass edifice in the 'burbs, a 55 inch LED TV, and I don't drive a brand new truck. Probably never will, even if I was sitting in two~three comma country. And therefore I agonize long and ad-nauseum over silly little things like a new $300.00 ~ $400.00 pre-built computer.

<....>

Couldn't agree more Dan, I do own my home, but thanks to an inheritance I was able to pay cash, so no mortgage, but I think very carefully about what I really need - as opposed to psychological need - and actually enjoy hunting in charity shops ( thrift shops to you? ) or finding the best deal going. The way I see it, to rip a £50+ pair of designer jeans is a tragedy, rip a £3 pair from a charity shop you sew them up and wear them for gardening/working on the car etc. My TV is a 26" CRT, ex rental, my sound system I've had since Tux was an egg. You get the picture? By the way, we had a big hoo-hah here in the UK, a lot of banks had been lending on bad risks and got in deep, several had to be bailed out by the govt., oddly enough a lot of senior people are still collecting £1M + bonuses. Crazy world.

[Dan]

... but I think very carefully about what I really need - as opposed to psychological need - and actually enjoy hunting in charity shops ( thrift shops to you? ) or finding the best deal going. The way I see it, to rip a £50+ pair of designer jeans is a tragedy, rip a £3 pair from a charity shop you sew them up and wear them for gardening/working on the car etc. ...

You bet, John! Again, by way of example, right now I've got a nice little gas powered weed whip in the garage, a sweet 25 inch cooling fan for the living room, and a really snazzy heavy duty washing machine in the utility room. All of which, save taking the time and energy to repair them, cost me exactly zip!

Which, by the way, makes them all pretty darned easy to walk away from -- should that need arise -- as a gift for the next guy who comes along and needs them.

[sonoran]

Originally Posted by John the train

I do own my home, but thanks to an inheritance I was able to pay cash, so no mortgage,

I don't see the advantage in not using a mortgage here.
Let's say you inherit $100,000 and spend it on a house. You have the house, but the money is gone. Had you taken out a mortgage to buy the house, and invested the $100,000, even investing it conservatively, the income from your investment would cover the mortgage, plus, at least in the U.S., the mortgage interest is tax deductible - so in time you end up with both the house and the $100,000.

So by paying cash you actually lost $100,000 - at a minimum. It's not called capitalism for nothing, guys. That original $100,000, under our system, represents much more than just what you can buy with it.

[John the train]

Originally Posted by sonoran

I don't see the advantage in not using a mortgage here.
Let's say you inherit $100,000 and spend it on a house. You have the house, but the money is gone. Had you taken out a mortgage to buy the house, and invested the $100,000, even investing it conservatively, the income from your investment would cover the mortgage, plus, at least in the U.S., the mortgage interest is tax deductible - so in time you end up with both the house and the $100,000.

So by paying cash you actually lost $100,000 - at a minimum. It's not called capitalism for nothing, guys. That original $100,000, under our system, represents much more than just what you can buy with it.

I wouldn't argue with the reasoning in many cases, but for me there were several factors that made a mortgage contra-indicated. The employment situation here was ( still is ) dire - one big employer who then imploded, nothing much to replace it - and under our benefit rules savings actually work against you, better to turn them into property, as long as it's a first home. Investments - at the time investment funds weren't paying too much, and to get directly into share dealing needed know-how and a degree of nerve that I didn't have at that time. Finally, I'd been brought up - as I suspect Dan was - in the philosophy of always paying cash.

[Dan]

Aye. That would be the way of it, John.

Let me propose an alternative to the mortgage idea. However, it requires both discipline and staying in one place for a while. Note that the later is approaching an impossibility in the USA any more unless you're a very conservative business owner, or are an agricultural concern. And the later of those choices may not be nearly as stable as one might first think. We're a very mobile society these days ... until fuel spikes over the average American's financial tolerance point, but that's another story.

How abouts you downsize your "needs" just a bit, work out the numbers on a 10~15 year mortgage ... but don't take it. Just use the math for a basis to feed your own savings. Then purchase your house and property with cash, and start religiously (sorry about that reference, sonoran. <....> ) making mortgage payments to your self, into an interest bearing account. Yes. You're going to miss out on that snazzy tax deduction ... whilst your house gathers equity free and clear, and your mortgage fund makes some, albeit modest, interest ... which you will indeed be taxed upon.

Yeah. You're going to pay some taxes. However ... it also seems to me that this may be pretty well offset by the amount of interest you are NOT paying the bank/mortgage company etc. (Including all those points, and loan fees and non-competitive crony provided insurance policies ... )

I probably have the math all wrong, which is quite likely, given my relative shaky grasp on basic arithmetic, but I just don't see the benefit of paying out a whopping load of interest into a mortgage company's pocket ... in order to get a tax deduction for the privilege.

And even when I managed to beat that nasty dog back into its cage, I run smack into that afore mentioned realization that, " ... every single default and/or repossession happens to somebody with a mortgage."

[bob]

It all depends on what your needs are and your total financial picture. If you mortgage your home, you'd conservatively wind up paying off 2 1/2 to 3 times the amount borrowed over the course of the mortgage. So, the profit on sale is questionable. Then again, the value of the currency is actually falling off during the term, so laying out $100,000 in 1980 would equate to today's value of $300,000. Nearly a break-even in terms of buying power.

And, will laying out $100,000 to buy a house leave you strapped? Personally, as soon as I have an extra $5.00, something breaks that costs $10.00 . You need to retain enough cash to tide you over the rough spots, such as a layoff that lasts 6 months or longer and at least one major car/home repair.

OTOH, don't expect that the mortgage you sign up for is the one you'll have to live with. Mortgages are sold constantly and your "friendly local bank" will likely bulk yours out to some company half-way across the country, with possible changes in terms. If you think that's illegal, both my kids just had their mortgages sold to companies that required flood insurance to be the replacement cost of their homes, including all contents, not just the market value or the amount of their mortgages. Each would have had to pay out $2000/year more in flood insurance.

[Dan]

It all depends on what your needs are and your total financial picture.

I'd agree with that. Another factor to consider is that most men are highly territorial. Women like to nest for sure, but it takes a man to get really obsessive about it. (My apologies to any ladies reading this ... but it's just one of those 'guy' things.) There is an almost uncontrollable urge to stake out a sweet chunk of hunting ground, and then snarl and try to bite anything or anybody else who crosses those boundaries. Even if it's actually far more than they can realistically defend. Fortunately, we're civilized enough that we don't go out and pee on the corners and patrol the perimeters every morning. Well ... most of us anyway. <....>

Personally, as soon as I have an extra $5.00, something breaks that costs $10.00 .

I think that one fits somewhere between death and taxes, and the second law of thermodynamics. That's just way the universe rolls.

<....>

[John the train]

Dan, Bob,
I think you've encountered one of Mr. Murphy's less well known laws, ' If it can go wrong it will chose a time when you have to get it fixed yesterday ,' otherwise known as ' over a barrel. '