There are a lot of considerations here and many excellent points are being made. Greg is right on with his reasoning. This becomes very much up to the individual.
Keeping the money and investing at a higher rate on an after tax basis sound great, but one has to weigh a lot of other things. Greg's point is very valid in that he raises the issue of comparable risk. If one is personally obligated to make mortgage payments for a long period and wants to 'lock in' a higher return to be sure those payments can be made: a safe investment is appropriate. Since mortgages are issued at a spread over an issuer's cost of funds; they lock in a spread. Comparable, safe investments probably aren't available to an individual at that same spread.
If one takes that money in puts it in any investment that will fluctuate, they run the risk it will be down or illiquid when funds are needed to make payments. Most people are not good at saving; most have their largest amount of equity in their home. Many people have no expertise in investing or don't have the stomach for watching things like the stock market fluctuate in value.
Dave, as always, excellent points. In general, however, real estate is far less liquid than traditional securitized investments, at least at the personal level, and especially considering present economic conditions.
Most people would never, ever save for later life or utilize their money in any method that can grow beyond the rate of inflation if it wasn't for their home. I've actually been discussing this phenomenon at length within my social circle and we've been hashing out some reasons for this. Anyways, with that in mind, you are right that most people can not bear to watch the market fluctuate, I know I have my fair share of days where I wonder if I would be better just burning the money in play, heck, at least I'd stay warm that way
At the end of the day, however, it comes down to horses for courses. Home-buying, to me, is a lifestyle choice first and a financial choice a far, far distant second. Diversified investments, which can include real estate (and even personally occupied real estate), are my bag and where I place my bets. At the end of the day, that's what it is, a bet, but I like the liquidity of securities versus real estate any day of the week. From a financial perspective, a home will rarely beat out traded securities and financial instruments in ROI over the long haul. I do want to stress that I mean individual, single-family dwellings on standard lot sizes.
Who is the sage that says millionaires don't use debt <g>?. I know many, very well that got where they are by using positive leverage. Maybe I'm misunderstanding.
Many TV pundits seem to be making money selling advise rather than running a business or investing themselves. For folks doing very well, how would they have time to give seminars and lectures for a fee? I run 13 business entities right now, why would I quit that to give out secrets of how to get where I am?
Best,
Dave
Leverage is a powerful tool. You can do some amazing things with leverage, but like a stuck rock deep in the earth, if you use too much leverage, your crowbar will break and smack you in the face!
I have a very, very close friend who got into the information peddling business. Basically, he realized that he could make a lot more money selling the information to people who wanted to play in his game than he could spinning deals all day long. Now, he still does deals, and does quite well, but he's diversified himself. It's a complicated situation, because I'm not always sure it's the most ethical thing, but, in that business, it's about image and presentation -- and he does a damn good job at both of those things. It's the LTCM model - we could go out and make large volumes of money on risky investments, or vacuum up the nickels dropped by trend chasers along the way. Guess which one paid off?
Cheers,
-Andrew
Interfering local rules is one of the risks I was wary of. )
Are you still reading this thread?
Anyway, I trust you will make the right decision for you.
