Strategic Default

^This -for the most part. +1 for someone with a sense of honor

But also this- there are other circumstances that must be considered other than to simply say, I bought this house and now I have to live in it...

^QFT

There is a growing number of economists and financial experts who have crunched the numbers and realized that the long-held belief that buying a house is a long term investment is actually not true, in most cases.

If you buy a house for $200,000 and mortgage it for 30 years, you will have paid almost $400k for your house by the time you pay it off.

That doesnt include all cost associated with maintenance and upkeep on a house over 30 years, which is undoubtedly more than $100k.

And the notion that spending $20k on a new kitchen is going to equal a net gain when you sell the house isnt necessarily true either- you could charge more for your house than your next-door neighbor if all other things being equal, you have a renovated kitchen/bathroom/whatever. But in reality what your really doing is making your house more marketable, not turning a $20k kitchen into $30k in house value....

So you'd have to sell your house for over $500k just to break even.

What you will find though, is that once you've sold this house for $500k, youre gunna have to buy another one or rent somewhere, thus sinking your profit into another 'investment'. So you're never really seeing any profit. If you put $20k down originally, and your 'profit' after the sale is $20k, you havent made anything- indeed you've lost money due to inflation. Its like having a savings account at 0%.

 

i don't care what everyone is saying, SeaBass wins, the rest lose!lol

 

But seriously, why would you make a major acquisition such as a home and not WANT it or PLAN for it to be an investment? That's what I was getting at. Not everything works out as planned.... I understand that and don't need the 3rd grade condescending speech. We're in tough times and things aren't the norm right now, but give it time and this country will be back on track as it always does.

My family raised me to see that a house IS an investment in your future, and if it's not, it's the wrong purchase. They demonstrated this in real life by purchasing homes, living in them for a few years, selling them and upgrading with the equity they built. We always had equity in our homes, and always sold them for more than we put into them because over time, houses just get more expensive. Unless you live in a neighborhood that is going to shit with crime, fatigue, natural distasters, etc., then you will gain. We're in a shitty market right now, but it will change and equity will begin to build again even for many of those who are upside down.

One comment made before regarding how much a home cost after 30 years... buy it for $200k but it costs you $400k...so what? Ok here's a real-life example so I can simplify it for you... my grandparents bought their house in Phoenix for $26,000. After 36 years of ownership, they sold it for $181,000. I doubt they spent $155,000 in upkeep during that time LOL. That $200k house you're talking about may cost $400k over 30 years, but it will be worth MUCH more than that if it's maintained right, hence a profitable investment. We can't conceive that this same house might be worth $1M in 30 years if maintained, but it's pretty damn likely folks. That's called PROFIT.

You are apt to make a home an investment by turning it over and getting something better when the timing is right, NOT at the end of the loan term. 5-10 years is a good window, then you have gained equity and can flip it for something better. Keep rolling up that equity, and I guarantee you that on the exact same income you can triple your home size/value in 10-15 years. How could you do that if home purchase was a loss? The only problem with doing this RIGHT NOW is the shitty market (there's an exception to every rule)

It's all about timing folks. Right now is the time to buy, not own something you bought 4 years ago. Buy now while it's cheap, don't do a damn thing to enhance it besides basic maintenance, and come back to me in 5 years and tell me how much value your home has increased and if it's a "loss" or not.

If you still see home ownership as NOT being an investment, you should go live in a tent in the Ozarks and build bombs to mail to politicians, or be a renter the rest of your life and build someone else's equity for them.

 

Tough choices to be made but I agree that once you give your word, be it written contract or hand shake, you stick to it. Our home is worth about 80K less than what we paid for it. It will take years to recoup the loss. We put a ton of money down, both have good jobs, can afford the payment, so we are staying.

Here is the problem, when someone simply walks away from a home, they are complicit in destroying the value of the homes surrounding them and sending the housing crisis further into the hole. The only person who "wins" is the person walking away. Everyone else loses..big time.

The housing crisis rest squarely with borrows who had no business buying a home they could not afford and banks for loaning the money to them. There is an old saying "If it sounds to good to be true, it probably is."

The saleswoman at our community refused to sell a house to a guy who she knew would default. She did this to protect our homes values as best as possible.

The only way I would simply walk away is if my house payment was getting in the way of feeding my family. If it was getting in the way of a new truck, car, boat, whatever; I would suck it up. To do otherwise is personally irresponsible in my opinion. I was fiscally irresponsible in my early days and made some extremely tough choices and sacrificed a lot to climb out of debt and have remained debt free (except for mortgage). If I can help it, I will NEVER owe another person money. It is liberating!

Huge choices and one that may come back to haunt you.

Good luck.

 

Good for you... nicely stated. It's tough out there... I have a sister that has really ben hit by hard times and many friends who have taken extreme hits in this economy. All have stuck by their obligations thus far. These are tough choices and tougher times--no doubt--but I can't see walking away from a contract with which I entered voluntarily. But that's been my experience.

But everyone's situation is different and I feel for those who feel they must make a decision to default on their obligations. I'm sure it is not an easy choice... at least those with a conscience. There are a lot of people out there who want to work (and, yes, there are a bunch that don't) and can no longer afford to keep their homes and I think that is very sad. I can't imagine. Too many good people out there looking for work. At this rate and politically divisive environment, things don't look to be getting much better in the foreseeable future.

OP, do what is best for your situation. Your the only one that knows your life and what you can live with. In the end, you have to look out for your family.

Great post.

 

Being that there are only 6 townhouses in our entire neighborhood, and most of them are vacant, we aren't a comparible home to the others around us. It won't affect them.

3 years ago when my fiance bought her house, 1300sf was big enough for her and her son. Then she met me, and 1300sf was not big enough for 2 adults and 2 teenagers anymore. Not to mention our combined 182 miles of combined commuting EACH DAY to get to our jobs.

It's not as much a matter of the money but a matter of the sanity of not having enough room and being so damn far from work. The fact of being so upside down was the breaking point.

We moved on, so can you.

 

Yup, exactly. Similar to my situation (other than I'm fine with the room). I just don't see the point in continuing to stay in an area that's rapidly falling in value with no end of site, very little local business in a corrupted town, commuting almost 60 miles a day, paying higher utilities, ect... why struggle when you don't have to.


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As for leaving adding to the problem... there's much larger fundamental issues at work here than the housing market alone. Honestly by next year it may not matter at all if they can't even get a functional budget with a decreasing yearly debt. Add on the fact the dollar is a useless measurement with no value at all to it (backed by absolutely nothing now), and almost every major economic power is falling way behind.... pretty soon it just isn't going to matter much. Unless hard choices are made soon by those "in power" to correct these things... everything will end up virtually worthless anyway.

So I guess my point is get yourself setup as best you can now for the rough ride to come. If you think it's getting rough now... it hasn't even started.

 

^ Yep.

 

So I guess your truck is also depreciating fast too... Hurry up and ditch that too...

 

ill get right on that.

 

Then the rest of America can pick up the tab.... But you will see when you get your own house how all this affects the honest people who hold their end of the deal upside down or not. If you can't afford it anymore sell it and cut your losses like a real man instead of running away from your debt.

 

perfect.

 

Um, actually... it's not. I actually got paid out higher on my 2008 prerunner when it was wrecked than I paid new for it....

Also, you're really going to compare a $30,000 truck vs a $165,000 house? Plus, you can move the truck to where ever you need to go, the house you can't. People's situation and lives change, and what may have been ok 5 years ago, may not continue to work in the long run. If you know you're going to move regardless, what's the difference in taking the hit now, or later.

As for those saying "honor thy agreement no matter what the situation is..." well that's all fine and good and if it makes you feel you're on the moral high ground, more power to ya. In the end of the day, you're not the one living our lives, we are. As for those saying it's not an investment... use whatever term you want. Investment, gambling, whatever... Any purchase of this nature is a risk. Sometimes it will work, sometimes it does not. All you can do is try for the best calculated lowest risk you can (unless you're in it for high risk/high gain). The market crashed, and the gamble lost. Suck it up and push forward. We're fortunate enough to have an opt-out on mortgages with little financial set-back.

How would you feel if someone's job was relocated and they can't sell their house because it's 100k upside-down? Suck it up and pay for two places to live anyway because you signed the paper? Completely illogical. You knew the risks signing the paperwork for the house, just as the bank did... if not more so. Plus when you foreclose it's not like the bank is getting completely screwed, they're just as screwed as you were with the underwater property as they keep it and it becomes their asset. So this cry me a river bit with the banks getting shafted goes no where. You wouldn't be crying if the house was in the positive and it foreclosed and the bank made a profit re-selling it would you?

 

Apparently you don't own a house with a mortgage on it, because you can't "just sell it" unless you can make up the mortgage to be paid in full, or otherwise short-sale it (which in principle is the same as foreclosing it). So, not sure what you mean by "sell it and cut your losses like a real man instead of running away from your debt." It doesn't work that way.

 

Sorry but that's a weak excuse @ best, when I bought my home 13yrs ago the bank qualified me for twice the amount I could afford. Sure I could have made the payments if I rode a bike to work & ate hot dogs everymeal. Banks have been offering people more than they could afford for decades, its when people started taking that money that shit went south.

 

your profile says your 18 years old. this correct?

but back to topic. this entire subject blows. i see the advantage of walking away..but didnt we sign a promise stating we will pay?

the rules keep changing. i would consult an attorney before making any move. i'm only slightly underwater. i expect it to get worse. me? i'll rent the home out, and buy another..and buy another. my first home, despite being underwater is very affordable for me. i am going to stay the course.

 

uh yeah?

 

I agree with your last sentence, to a degree. Banks were required to relax their lending standards and make zero down-payment loans and offer sub-prime loans because of the Community Reinvestment Act. Not that the banks didn't willingly play along, mind you... they did, eagerly. They just had to offer loans to people they knew had no ability to repay. The government is at fault for forcing the CRA down everyone's throats. The banks are at fault for lending money to those who had no ability to repay. Let's not forget those borrowers who took out those loans knowing they could not repay. There is a shit-ton of blame to go around.

 

That was 13 years ago, not 3 years ago. She could afford the house, but we outgrew it. Read the rest of the posts.

She qualified for $290k and bought for $180k. She afforded it just fine on her own, with plenty of spending money to boot, and even better when I moved in. For the 15th fucking time it's not about affording it, it's about the long-term loss, the long-ass wasteful commute, and the lack of size for 4 people.

 

some people will just never understand adam, thats why i prefer to be sarcastic to people like that

but realistically, who would keep something that they owe tripple the ammount that its worth when its not their fault?

i wouldnt. and for you people saying this is what makes the US what it is. are you upside down? how much?