How to Become Debt Free: The Treasury Secretary May Be Wondering
Want to be debt free? Having a house "underwater" makes it hard. You're underwater when the value of your home is less than the mortgage you have on it. A lot of people who bought homes sometime after 2000, especially between 2003 - 2006 are now underwater. As you know, real estate values have gone down a lot.
Some people took on big mortgages. Banks were granting mortgages to people who couldn't really afford the mortgage payments. Some just bought homes too big for what they really needed. They probably thought, what the heck, I'll buy big. The house can only increase in value. Real estate always goes up.
Our Treasury Secretary is in there somewhere. Remember how he couldn't sell his home in Westchester when he took the job of Treasury Secretary and had to move to DC? It's a five bedroom Tudor and he has two mortgage on it, totally $1.2 million. He bought the place for around $1.8 million.
Remembering that this guy's the head of the Treasury Department, we were a bit surprised to learn that he's got two mortgages on the place totaling $1.2 million. He's got to have a fairly hefty payment due each month. Oh, and then there's his real estate taxes. They come to about $27,000.
The good news for him: he's rented the place for a reported $7,500 per month. Don't you feel better now?
On the other hand, we did some quick calculations and guess he's probably paying somewhere between $7,000 and $8,500 or more per month. So he may be experiencing "negative cash flow" on the home (owes more on the mortgage, taxes and insurance than he's receiving in rent). Poor guy.
I wonder: did he really need the big house? To get it, he had to take on a pretty hefty mortgage. For what? And this guy's running Treasury?
What's maybe more disturbing, though, is what this may be saying about the mortgage debt of wealthier people out there. Are there more folks with hefty mortgages living in those expensive houses who are going into foreclosure soon? And are they going to be "underwater" (house value less than the mortgage value) just like the common folk?
It turns out the answer is yes. What will the consequences be?
Well, it's begun. Expensive homes are, in fact, going into foreclosure. In spite of the recent publicity about how the New York City luxury real estate market is rebounding, the same isn't true in other places around the country. Besides, the so-called luxury market in New York is really a kind of super-luxury market.
But even there, the latest example of rebounding involved a rich guy who's place on Central Park South went into foreclosure. The place was bought for $33 million. Oh, and guess who bought it? A "Chinese businessman" - at least that's what the media reported.
So if the New York luxury market's doing OK, it may be because New York's the kind of place foreigners come to buy up real estate. Is that supposed to be good news for the rest of us?
What matters is that more expensive homes are now going into foreclosure. That will add to the downward pressure on real estate in general. If you're looking to buy a house, be selective. Take your time.
If you're selling one home and buying another, that may just be something you can't avoid doing. Maybe you're relocating for a job or something like that.
If you've got cash and just want to "invest" the cash, be careful. Now may not be the best time to buy real estate - unless you really know what you're doing. If you're going to buy a house for the first time and need a mortgage, be even more careful.
Becoming debt-free is hard enough for some of us. Why buy something that's going to just go down in value right away?
Some people took on big mortgages. Banks were granting mortgages to people who couldn't really afford the mortgage payments. Some just bought homes too big for what they really needed. They probably thought, what the heck, I'll buy big. The house can only increase in value. Real estate always goes up.
Our Treasury Secretary is in there somewhere. Remember how he couldn't sell his home in Westchester when he took the job of Treasury Secretary and had to move to DC? It's a five bedroom Tudor and he has two mortgage on it, totally $1.2 million. He bought the place for around $1.8 million.
Remembering that this guy's the head of the Treasury Department, we were a bit surprised to learn that he's got two mortgages on the place totaling $1.2 million. He's got to have a fairly hefty payment due each month. Oh, and then there's his real estate taxes. They come to about $27,000.
The good news for him: he's rented the place for a reported $7,500 per month. Don't you feel better now?
On the other hand, we did some quick calculations and guess he's probably paying somewhere between $7,000 and $8,500 or more per month. So he may be experiencing "negative cash flow" on the home (owes more on the mortgage, taxes and insurance than he's receiving in rent). Poor guy.
I wonder: did he really need the big house? To get it, he had to take on a pretty hefty mortgage. For what? And this guy's running Treasury?
What's maybe more disturbing, though, is what this may be saying about the mortgage debt of wealthier people out there. Are there more folks with hefty mortgages living in those expensive houses who are going into foreclosure soon? And are they going to be "underwater" (house value less than the mortgage value) just like the common folk?
It turns out the answer is yes. What will the consequences be?
Well, it's begun. Expensive homes are, in fact, going into foreclosure. In spite of the recent publicity about how the New York City luxury real estate market is rebounding, the same isn't true in other places around the country. Besides, the so-called luxury market in New York is really a kind of super-luxury market.
But even there, the latest example of rebounding involved a rich guy who's place on Central Park South went into foreclosure. The place was bought for $33 million. Oh, and guess who bought it? A "Chinese businessman" - at least that's what the media reported.
So if the New York luxury market's doing OK, it may be because New York's the kind of place foreigners come to buy up real estate. Is that supposed to be good news for the rest of us?
What matters is that more expensive homes are now going into foreclosure. That will add to the downward pressure on real estate in general. If you're looking to buy a house, be selective. Take your time.
If you're selling one home and buying another, that may just be something you can't avoid doing. Maybe you're relocating for a job or something like that.
If you've got cash and just want to "invest" the cash, be careful. Now may not be the best time to buy real estate - unless you really know what you're doing. If you're going to buy a house for the first time and need a mortgage, be even more careful.
Becoming debt-free is hard enough for some of us. Why buy something that's going to just go down in value right away?
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