All Forum Posts by: John Nachtigall

@Matthew Olszak

That is an easy answer, we live in a democracy.  And as a bonus building codes are ultimately decided by the local community.  So Chicago can have a different standard to rural SC.  But codes they have.

We are not talking about granite contertops, that is not in any code.    But we are taking about copper wiring, and no breaks in wires in the walls (because hoses burned) and 2 exits in every bedroom (because people die trapped in houses) and non lead paint and no asbestos etc.

This is not new, there have been building codes since well before Christ was born.   And they always grew out of tragedy.  In this area society has decided that the market is not a good way to set the bottom, because every time it has resulted in tragedy.    Now go back and watch the people in the London fire burn to death because they saved a dollar a tile on siding and tell me that the market can set adequete safety standards by themselves.  

 That is a really libertarian attitude. I have found it is super popular right up the point we're the warehouse burns down, the house collapses, the family suffocates on CO, or pick any of the other tragedies that have lead to building and fire codes.

I have been GOP my entire life, but there is a real need for building codes, because without them some people will race to the bottom.  So,yes, it is for us to judge, there are minimum standards and they should be enforced

You said you supplement your income with speaking...but hey, if they are paying you in vegetables then more power to you.    

I am glad we agree on why it works, no fault to find.  I got a 15 year, not 30 year mortgage because higher payments and faster loans = good.  

I looked at the spreadsheet summary.  This is simple to understand.  He is enticing people into paying more than the minimum, it is no more complicated than that.

Pay mortgage payment = 22 years of payments (in his summary)

Pay mortgage + HELOC principal + HELOC interest = 9.6 years of payments (in him summary)

There is nothing wrong with it, it is behavioral economics. Pay more each month and be done with loan faster...shocked face. That is why his math broke down when I gave the example of paying the whole mortgage. If it worked because of how the HELOC interest was calculated that would be best case, but it just exposes how it only works because of extra payment. Just like 15 year vs 30 year mortgage, The sad part is he refuses to admit why it works.

I think it is because he is scared of my new SCAMS (tm) program. It is 24.3% better than the HELOC method (unaudited and unverified) and has a better acronym. Plus there is my new program, "improved super calculating amazing mortgage system" or iSCAMS (tm) because everyone knows that putting an "i" in front makes it 37.8% better, I am charging $100 for that program. Buy now and I will give you both for $135, a 10% discount. Act now

@David Dachtera

So it works if I pay SOME of my primary, but not ALL of my primary.   Explain those numbers to me.    What if I pay all but $1 of my primary, will it still work?   

David, it works because you are paying more than the minimum...it is not magic.

@David Dachtera

I assumed no such thing. I specifically said it only worked if you had enough money to pay the mortgage and the HELOC and the HELOC interest. That is certainly not "everyone".

We all agree with you David. If you pay more than the minimum mortgage payment every month you will pay off your mortgage faster. You are 100% right. We only disagree on it being related to how HELOC interest is paid, it is actually just behavior economics. I share your love of numbers, so I will use my specific case

I own a townhome worth 475k.   I have 12 years left on a 15 year mortgage.   My balance left is 225k on a 3.25% interest rate.   I pay 2207.81 in principal and interest every month.   Obviously every month the principal part gets a little higher, but the total 2207.81 stays constant.   

So using your "amazing" method I get a HELOC and pay off the WHOLE primary. No more house payment....YES!!! But now I owe 225k at prime + 1% (about 5% at the moment) BOOO!!!!. In no world can I apply my 2207.81 a month to that 225k at 5% and pay it off in LESS than the original 12 years.

The "magic" of your method is to get people to pay more than the minimum each month. In the above scenarios if I upped my payment on the HELOC to $2500 or $3000 it would take less than 12 years. But cost more than if I just did what I did originally, and took a 15 year fixed not a 30 year fixed. I didn't need to be tricked into saving $132,000, I am willing to save that without any mind games

OMG!!   I just realized I invented a new method to saving money.    I am going to call it the Super Calculating Amazing Mortgage Secret (tm), or SCAMS (tm) for short.    Charge a modest $50 for the simple 1 sheet secret instruciton booklet.   I am going to be rich enough to sue...yeah!!!!

 @Mike Dymski @Chris May @Robert C.   You had better not steal my new method.  

@Bruce Lynn

Apparently there are 800+ "private roads" in San Francisco and they are all taxed at $14 a year because that was set back in the 1800's.   I smell a tax increase coming.   It will not take long for the most liberal city in America to figure that out (sorry Berkeley, New York or Boulder if you are offended).  

@Aaron Mazzrillo@Ryan Lee

There is something to be said for aspiring to be wealthy enough to be worth suing.   I fervently hope to be worth a frivolous lawsuit one day, I will know that I have arrived.    :-)

Despite my BS and MS in engineering, I can't get the math to work either when you go apples to apples.   Best as I can tell, the pitch on this is a combination of 2 things.

1.  Lump sum payment at the "beginning" .   Similar to the difference in returns if you put say $15,000 in your 401k Jan 1 vs Dec 31.   Technically both are funded the same year, but returns are better if you fund on Jan 1 vs Dec 26 which is why companies that put in the full match on Dec 31 are screwing you.   

Here the argument is that your lump sum pay the $15,000 at the beginning, and then you slowly "pay that back" over the course of the year so the total interest paid goes down.     The flaw in this argument is that it assumes that you have the mortgage payment + the principle and interest on the $15,000.   If you had that, you should have just moved it to a 10 or 15 year fixed and be done with it (with lower interest rate).   So no magic, just a complicated way to pay more than your payment every month.  

2. The real "trick" is behavior economics. Basically if people see a $-15,000 balance the theory is they will pay that to zero before they think you have "extra" money. That is why they tell you to deposit your check into the HELOC. It pre-assumes that people don't have the discipline to pay extra into their mortgage (with say a 15 year fixed), so they force it by putting you in debt (the initial $15,000 lump) and then assume the pressure of the debt will force you to pay it back over the year. then repeat. You never have "extra" money in a month because the negative balance always shows...so it forces you to pay more every month. Which is why the "it works" forces point to it working and the "its bunk" forces can show that it is not magic, it is just paying more each month.

It "works" because people don't realize they are actually causing a loss aversion reaction in themselves. It is well understood that humans care more about loss aversion (I don't want to lose my house because the loan is late) than then are to gain elation (I will pay off my mortgage in 10 years). combined with hiding your free cash in a negative HELOC balance it tricks people into paying more on their mortgage....behavior economics.

That is my take.

I have been following the story as I live close to SF. They actually own the road, the sidewalks, and the "common" areas. They got into a bidding war 2 years ago, so they paid $90,000 for a $990 debt. They have said they just saw the address and went for it. They kept it secret for 2 years to get it past the date by which it could be rescinded. The HOA only found out because the title company that the couple was using to make sure title was clean called the HOA and asked if they were going to buy it back (lol).

The home owners apparently already have an easement to get to their homes, but have no rights to park on the street anymore.   And as far as being an exclusive "gated" community, they can deny access to the roads owner and anyone the owner deems.   So, for example, if he wanted to charge tour busses $10 a pop to run around the roundabout and look at the homes, he could.    It is private land...his private land, so he has access to his land.  

It is absolute extortion...it is absolutely legal. The HOA is rich and powerful and they will surely fight, scream, and stamp their feet, but in the end the law is settled here and they are going to have to pay to get this back. Personally, I think I would just pay someone in a jalopy to drive around the circle from 8am to 10pm. Invite the press, have them take pictures or even better give them rides....after 1 day the HOA will pony up whatever money you wish.

It is a simple clerical error, in all honesty the HOA does not deserve it just because they are rich. But it is hard (emotionally) not to root against them.

While I cant disagree with what anyone has said, I think the answer is much simpler.   

Most people don't invest in real estate because most people don't invest or understand even basic finance.   

• More than 50% of people can not handle an unplanned $500 expense without going into debt:  http://www.cbsnews.com/news/most-americans-cant-af...
• More than 50% of people do not invest in stocks: https://www.cnbc.com/2015/04/09/half-of-americans-...
• The average amount of credit card debt is more than $8000: https://www.cnbc.com/2017/05/17/how-much-the-avera...
• 2/3rd do not understand basic finance like what "inflation" is: http://abcnews.go.com/Business/story?id=87381&page...

So if you exclude the 60% of the country described above, why do the remaining 40% mostly not invest

• Real estate is generally not liquid, so investing is more long term and requires higher minimum capital levels. I can invest $400 a month in S&P 500 index funds automatically, I need a 20% down payment (baring alternative finance) to buy a BRRRR. That requires discipline and patient, so the pool of people gets smaller
• Higher knowledge level required.   I did not say intelligence, but it is simply easier to buy stocks than houses.   Jim Kramer will tell me what stock to buy (or any of the myriad of other guru), no one tells you which house to buy, at best they tell you what city to buy it in.
• Limited inventory:   Yes there is 25.7 trillion dollars of real estate in the US, but for comparison there is 20 trillion in the S&P 500 alone.   Now subtract out the trophy assets like the empire state building.  Take out everything above 30 million because the professional syndicators (30-50 million) and REITs (50+ million) own those, so not the average investor, and you are left with what is available.  

So take the 40% that invest in anything (average from above).   Subtract the people that want liquid investments, the ones with no knowledge and the ones with little to no opportunity and you are left with the people that have the possibility of investing.   THEN you can apply the factors like fear and such.

PS:   I have no stats on this but I would imagine the US has a higher percentage of real estate investors (compared to the population) than other parts of the world.   Those problems are even more prevalent in other parts of the world + you have things like real estate ownership laws and political instability.