Tell Me Again How Awful HOA’s Are?

[churchmouse]

It's just a group of people getting together and agreeing to rules.


Ummm.
If only there were a word for that...town, city, county, etc.

But at least with the town, city, county, etc... there has to be "due process", and other branches can weigh in.

Such as.. if your town says "NO GUNS".
Well, the solution is not perfect, but there are courts to fight that. And a Bill of Rights.

But you move into your wonderful HOA.
For 5 years it's great.
But a couple people move out, and some anti gunners move in.
Then a few more die, or move out, and it gets bought up by a corporation.
Most of those corporations are anti-gun.
So, they move to ban guns in the HOA. All known gun people are suspect of getting more, so they must submit to once a month random inspections.
The corporation doesn't quite have enough votes, but they offer to pay peoples fees for a couple years.
The vote goes through and....

Fight it?
How?

Do you see this as a stretch? It is a scenario I have heard before but no. They do not have any grounds to come into your home. At least now or that I am aware of.

 

[actaeon277]

Do you see this as a stretch? It is a scenario I have heard before but no. They do not have any grounds to come into your home. At least now or that I am aware of.

If they put it in the "covenant"...

Just like, how the heck do they put in that your garage door must be open (some covenants)?
Sounds crazy.
Yet I've heard of some doing that.

 

[churchmouse]

If they put it in the "covenant"...

Just like, how the heck do they put in that your garage door must be open (some covenants)?
Sounds crazy.
Yet I've heard of some doing that.

Yes, I have seen all those rules.
It may be stretch on the gun thing but that would be major.

 

[actaeon277]

Yes, I have seen all those rules.
It may be stretch on the gun thing but that would be major.

If Shannon Watts thinks of it, do you put it past her to start hitting up those corporations buying up houses?

 

[churchmouse]

If Shannon Watts thinks of it, do you put it past her to start hitting up those corporations buying up houses?

No sir.

 

[jkaetz]

I honestly think much of this discussion, particularly IngoMike's early pushback/disbelief on those who said they wouldn't care if they lived next to LPH (Little Pink Houses), is the mindset that your primary residence is an 'investment'. This is a marketing driven device to convince you to overspend on your house. With that mindset it's ok to be 'house rich/cash poor' because on paper your net worth is higher. Then you're encouraged to borrow against your paper value as an equity loan when being cash poor bites you in the ass. As such, you have to be on constant guard against market fluctuations for value and people who have no intention of selling today put way too much emphasis on today pricing.

Your primary residence is not an investment. It is an asset, but that's not the same thing, and if you get the liquidity out of that investment you are now 'homeless' until you replace it. Will you actually make money on your primary residence? Maybe, but not nearly as much as you are conditioned to believe. The marketing wants you to look at purchase price vs selling price and wants you to forget all the interest you paid, PMI you paid, taxes you paid, and definitely wants you to forget the opportunity costs.

Let's say you bought the perfectly average US house in 1990 for $150k with a 30 year mortgage and paid it off, then sold it to move to Tahiti in your golden years in 2020 the day after you paid it off. Your perfectly average US house was worth nearly $400k that day. You've been conditioned to think you just made $250k on your 'investment'.

Interest rates were about 10% for mortgages in 1990, but have dropped over the years. Let's simplify and say you paid an average of 6% via refinanacing a few times. Let's further assume you put down 10% cash and only paid PMI for the first 5.5 years. Let's oversimplify and just assume a 1% property tax rate on initial value for the life of the loan.

You paid $156k in interest.
$45k in property tax
$5k in PMI

Down to $44k profit

What did your home owner's insurance run? Say $600 annually on average?

Down to $26k profit.

Hope you didn't have an HOA and pay $100 a month on average to that, or now you're $9k in the hole. And that's with $0 in maintenance over 30 years. Maybe you made it back on tax savings on mortgage deductions, this is an oversimplification, but you get the point I think. That $250k gain is an illusion. You had a place to live, though.

Just for comparison, let's say you took that same 10% down and put it in an S&P500 index fund and added $200 a month in a tax deferred account. That should be easy to do in Average US Town because average rent is significantly lower than average mortgage payment for the vast majority of time. You get a 7.9% return on that money, assuming you reinvest dividends. Now you cash out for your Tahiti move.

Total profit: $359k pre-tax. Huge difference in terms of maximizing wealth.

That's an investment. Obviously everbody's situation will be different as nobody is going to have the perfectly average scenario, but it should be an illustrative of why 'your house is your biggest investment' is terrible advice that profits the real estate industry more than the home owner. I intentionally way 'underbought' on my house vs what the banks said I could afford because I know the difference and bought a house to live in, not as a status symbol or the notion it was an investment. I'm on track to retire a millionaire before most people are on track to retire period, and that's on a pretty mundane household income. Don't be house rich/cash poor.

I'm not sure most people are looking at their house as a retirement investment strategy. The investment is that they get to live in it for a lot of years before they could have saved the $$ to buy it outright.

If they bought a larger home presumably to support a family and they sell the home at retirement time they still have a sizable pile of cash saved and can likely now purchase a smaller home outright with money left over.

They're also miles ahead of renting as they have not lost any $$ even paying for interest, PMI, insurance, etc...

Investment is likely the wrong term for a home but for the large percentage who don't even have a savings account it's as close as they'll likely get so long as they don't continually take out equity loans. People make poor financial choices all the time. Buying a house usually isn't one of them unless they buy too much house.

 

[BehindBlueI's]

They're also miles ahead of renting as they have not lost any $$ even paying for interest, PMI, insurance, etc...

If they have the discipline and desire to invest the difference, they are not, as I demonstrated. Rent has advantages in terms of both a generally lower cost so more cash for actual investments as well as more freedom to move for higher paying wages, chasing job markets, etc. It has disadvantages in being more exposed to changing market conditions (as many are finding out now that the lords are buying up more and more manors) and a relative lack of tax sheltering.

If they just spend the difference on strippers and Skittles, very much a net loss. Unfortunately, that's more common. Few people really consider opportunity costs and throw way more money away on what's essentially trash thinking only of the number on the price tag.

 

[Route 45]

I honestly think much of this discussion, particularly IngoMike's early pushback/disbelief on those who said they wouldn't care if they lived next to LPH (Little Pink Houses), is the mindset that your primary residence is an 'investment'. This is a marketing driven device to convince you to overspend on your house. With that mindset it's ok to be 'house rich/cash poor' because on paper your net worth is higher. Then you're encouraged to borrow against your paper value as an equity loan when being cash poor bites you in the ass. As such, you have to be on constant guard against market fluctuations for value and people who have no intention of selling today put way too much emphasis on today pricing.

Your primary residence is not an investment. It is an asset, but that's not the same thing, and if you get the liquidity out of that investment you are now 'homeless' until you replace it. Will you actually make money on your primary residence? Maybe, but not nearly as much as you are conditioned to believe. The marketing wants you to look at purchase price vs selling price and wants you to forget all the interest you paid, PMI you paid, taxes you paid, and definitely wants you to forget the opportunity costs.

Let's say you bought the perfectly average US house in 1990 for $150k with a 30 year mortgage and paid it off, then sold it to move to Tahiti in your golden years in 2020 the day after you paid it off. Your perfectly average US house was worth nearly $400k that day. You've been conditioned to think you just made $250k on your 'investment'.

Interest rates were about 10% for mortgages in 1990, but have dropped over the years. Let's simplify and say you paid an average of 6% via refinanacing a few times. Let's further assume you put down 10% cash and only paid PMI for the first 5.5 years. Let's oversimplify and just assume a 1% property tax rate on initial value for the life of the loan.

You paid $156k in interest.
$45k in property tax
$5k in PMI

Down to $44k profit

What did your home owner's insurance run? Say $600 annually on average?

Down to $26k profit.

Hope you didn't have an HOA and pay $100 a month on average to that, or now you're $9k in the hole. And that's with $0 in maintenance over 30 years. Maybe you made it back on tax savings on mortgage deductions, this is an oversimplification, but you get the point I think. That $250k gain is an illusion. You had a place to live, though.

Just for comparison, let's say you took that same 10% down and put it in an S&P500 index fund and added $200 a month in a tax deferred account. That should be easy to do in Average US Town because average rent is significantly lower than average mortgage payment for the vast majority of time. You get a 7.9% return on that money, assuming you reinvest dividends. Now you cash out for your Tahiti move.

Total profit: $359k pre-tax. Huge difference in terms of maximizing wealth.

That's an investment. Obviously everbody's situation will be different as nobody is going to have the perfectly average scenario, but it should be an illustrative of why 'your house is your biggest investment' is terrible advice that profits the real estate industry more than the home owner. I intentionally way 'underbought' on my house vs what the banks said I could afford because I know the difference and bought a house to live in, not as a status symbol or the notion it was an investment. I'm on track to retire a millionaire before most people are on track to retire period, and that's on a pretty mundane household income. Don't be house rich/cash poor.

Yes, but is your neighbor's mailbox the same color as your?

 

[BehindBlueI's]

Yes, but is your neighbor's mailbox the same color as your?

Nope. One guy has a toy rat he dresses up for the holidays, though. It's maybe a bit bigger than a football. It's currently on a snowboard and wearing ski goggles. No idea what it does to the neighborhood property values. The other guy's chickens aren't afraid of it, though.

 

[Leo]

Some people like certain things, some people make their own trouble. The neighborhood next to me is a no fence, no shed, no street parking community wrapped around a good sized pond. They advertise the policies as a feature. It is no secret. The people that like that stuff paid about twice as much as similar sized homes in my fence allowed neighborhood. Pretty much all retired professional people of successful businessmen. I know several people there and they seem to really like it. Happy for them.

Then a guy I know personally with handicapped children buys a house right on the "lake". He fully knew about the open concept and the deed restrictions. A year later he wants to sue to put up a fence and an out building. He is screaming like they are picking on him because of his handicapped children. ADA and all. I have told him he was in obvious error to his face. He now accuses me of trampling his rights. He did flunk out of law school, so I guess I must be wrong.

 

[Ingomike]

Rent has advantages in terms of both a generally lower cost

First off in indiana the homestead tax rate is 1% the rate for rental property is 2% so there is a 1% cost. The cost of financing rentals is higher than owner financing. Currently in Indy apples to apples homes in the $300k range are renting generally $500-$1000 more than the payments of qualified buyers. Rent has never been lower cost than owning, unless someone had a sweetheart deal…

 

[jkaetz]

If they have the discipline and desire to invest the difference, they are not, as I demonstrated. Rent has advantages in terms of both a generally lower cost so more cash for actual investments as well as more freedom to move for higher paying wages, chasing job markets, etc. It has disadvantages in being more exposed to changing market conditions (as many are finding out now that the lords are buying up more and more manors) and a relative lack of tax sheltering.

If they just spend the difference on strippers and Skittles, very much a net loss. Unfortunately, that's more common. Few people really consider opportunity costs and throw way more money away on what's essentially trash thinking only of the number on the price tag.

Ok, if I understand your math renting and investing will put you slightly ahead all other things equal.

Buy home @150k, sell after 30 years and get $400k in your pocket

Or rent, invest ~87k over 30 years, get 359k profit for $446 in hand

That said, I don't see renters being that disciplined. Seems to me the best option would be buying a smaller house and still investing so you don't lose all the rent money.

 

[JBLee]

Not what 'physically' means.

If someone is causing you financial harm due to their actions it effects you physically, count on it.

 

[Lpherr]

What strip club is this? Asking for a friend

When you join the HOA, they give you a members card.
Not all have the spaghetti, some have tacos.

 

[Lpherr]

If someone is causing you financial harm due to their actions it effects you physically, count on it.

That's a bit of a stretch.

 

[BehindBlueI's]

First off in indiana the homestead tax rate is 1% the rate for rental property is 2% so there is a 1% cost. The cost of financing rentals is higher than owner financing. Currently in Indy apples to apples homes in the $300k range are renting generally $500-$1000 more than the payments of qualified buyers. Rent has never been lower cost than owning, unless someone had a sweetheart deal…

I['m sure you got the point I was making and the fact it was a US average using various assumptions that are in line with that, not an Indiana specific or given individual specific to the penny calculation.

Apartments are homes. You can rent cheaper than you can buy in pretty much any market in pretty much any timespan, but I'm sure exceptions sometimes occur.

 

[BehindBlueI's]

If someone is causing you financial harm due to their actions it effects you physically, count on it.

No. Words mean things.

 

[Ingomike]

That's a bit of a stretch.

Not at all, it is a damage…

 

[Lpherr]

I['m sure you got the point I was making and the fact it was a US average using various assumptions that are in line with that, not an Indiana specific or given individual specific to the penny calculation.

Apartments are homes. You can rent cheaper than you can buy in pretty much any market in pretty much any timespan, but I'm sure exceptions sometimes occur.

If you're comparing the monthly payment only, between renting and purchasing, in my experience, purchasing is less if all things are equal. When paying rent, you're paying the mortgage payment, plus extra for upkeep/repairs, and insur/taxes. Those things aren't generally included in a mortgage payment, with the exception of insur.

 

[Ingomike]

I['m sure you got the point I was making and the fact it was a US average using various assumptions that are in line with that, not an Indiana specific or given individual specific to the penny calculation.

Apartments are homes. You can rent cheaper than you can buy in pretty much any market in pretty much any timespan, but I'm sure exceptions sometimes occur.

So you persist in pushing this line? You can always buy a cheaper house just like you can find a cheaper apartment. There is NO way to rent cheaper because the taxes, debt service or profit do not allow for that. The only way to get to your answer is to compare renting an apple to buying a grapefruit…

Your averages lead to an average answer just not the right one for the real world…