New answers tagged

0

To make it simple I'll consider a 50% mortgage, and assume you have enough to buy one house outright. Monthly costs. If you own one house outright, your costs are maintenance, and any fees you're paying your estate agent. If you own two properties with mortgages, you now have much higher monthly costs. Rental income. By buying two houses you now have double ...


0

A few examples that could turn out pretty bad: You invest in prime high street locations (shops). Turns out there's this Internet thing, and high street real estate goes down (takes a while, but it does). Or the flagship store that drew all the customers to the shops around it closes down. You invest in a prime location. Government decides to build an ...


0

The thing you're missing is the details. And the devil is always in the details. How do you define "going broke?" If your definition literally means "all assets go to zero" then - maybe - the threshold of failure for your plan will be low(er). But, most people would consider an investment a failure at a much lower threshold. Let's say you've dumped $10M ...


2

Can you lose money on real estate? Yes. If you buy a house, and it turns out to need serious repair work, or a renter trashes the place, or whatever, you can lose money on real estate. Can you go broke? You still own the property, and can resell it, even at a substantial loss. But that's also the case with stocks. If you buy an index fund, that's never ...


4

If you follow the classical mantra 'location, location, location' and invest in regularly in prime real estate, or, according to your economical level, in a company or fund that does this, what can go wrong? Poor management (this includes a lot of sins). Buying high instead of low. Laws that make it virtually impossible to expel Bad tenants. Economic ...


3

Yes. It doesn't matter how safe anything is, particularly when you invest on margin (mortgage) the margin maintenance can become unsustainable.


34

I know this from Poland. This is a semi-legal poaching technique used by estate agencies. It's semi-legal because the agencies (company) cannot impose a buyer, but an agent (a sole representative) is not forbidden from doing that. This is used to create leads for them they could then show to their clients. It works because buying direct, with cash, makes ...


27

The "We Buy Houses for Cash scheme" is targeting desperate and misinformed property owners (like elders and minorities) through pressure purchase tactics to rip them off by taking the low ball offer with cash. In the process, the scheme maker (some are real-estate agents) actually already has a willing buyer, and this allows them to sell the house with ...


2

It's obviously a scam for the reasons you mention, but I doubt it involves an actual property transaction. Possibilities include that they'll have all sorts of "problems" getting cash and ask you for help (the classic confidence scam), or they're simply casing homes to later rob by pretending to see the apartment and then "choosing some other place".


1

If you are an entrepreneur and live well below your means potential clients might perceive you as unsuccessful and therefore decline to do business with you.


2

One potential disadvantage of living below your means I haven't seen fleshed out yet is that the appearance of being rich and successful can help you in the business world. Even the best of us are still riddled with biases and assumptions. Study after study has shown than well dressed, attractive people are thought of as more intelligent, honest, more ...


2

The richer and more successful you are, the more you can afford to live below your means. No one is going to be disappointed with, or unlikely to invest with, Warren Buffet, who lives in a middle-class house. From Business Insider: Located in a quiet neighborhood of Omaha, Nebraska lies the home of billionaire Warren Buffett. He bought the house for $...


4

You should live "below your means"! It's vital to save and invest, particularly for retirement. I am troubled by your definition, because it seems to equate living-at-means with spending no more than your income. That definition leaves enough room for the person with no debt whose account just hits 0 as the next paycheck arrives. You need an emergency ...


1

One point that hasn't been covered anywhere yet is Inflation Let's assume you're saving this money. If you're living in a modern Western democracy with a normal lifestyle, you'll probably keep your money in the bank. In other places, you may have to literally hide your spare cash somewhere it can't be found. The problem you have now is that the cost of ...


2

Summary: I think the overall art is to find your sweet spot in these financial/economical matters and that's something where general advise on particular situations will very often not be appropriate. Overall it's clear that living well below your means is good. Further than that, we can predict/think about particular scenarios, but many may be financially ...


0

Yes, but not for the reasons that other answers have claimed. Rather, it's a matter of status symbols, personal image, and how these things (or their absence) impact your ability to increase income/wealth - whether that's through employment, investment/venture capital, building clientele, getting a mortgage (thereby avoiding having to pay rent), getting ...


2

One big disadvantage I see - what if you drop dead before you reach retirement? If your goal is to save money to pass on to descendants you may be fine with that, but looking at a single individual money you can't spend is worth nothing. Money is only an artificial construction for tallying what you can do with it - things you can buy (including services ...


15

For quite a number of products, the cheaper option ends up being more expensive over time, an often quoted paragraph in that context is the Boots theory of socio-economic unfairness which highlights the problem well even if it is completely fictional. The running cost of a used car is likely to be higher than for a new car, because there is usually a reason ...


2

The only potential financial disadvantage I can see is potentially falling into the trap of penny wise pound foolish mentality. e.g. A cheap used car can be expensive in maintenance Houses in the cheaper region may need more maintenance. It may also mean longer travelling distance to work. Nevertheless, one who refuses to succumb to peer pressure actually ...


3

It’s important to be able to distinguish an expenditure from an investment, which isn’t always easy (except in hindsight). A more expensive house whose price will appreciate is an investment, especially if it will save you money on things like commuting costs. An education is an investment. A car is an investment if it gives you access to more and better-...


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Financial disadvantages to living below your means: you pay more taxes inflation is going to slowly eat up your savings, if you do not actively make it work for you (real estate/stock exchange/etc) you are ineligible for a lot of financial benefits from your government as you have too much money.


6

What is not mentioned in the other answers, that is listed in the question: If you live in a "worse" neighborhood, there might be a higher criminal rate. That could be a big disadvantage and worth considering, especially if you have kids. This could cost money in the long run, repairs on house or car, stolen goods, and the risk and costs of being injured/...


32

Other answers do a good job explaining direct financial disadvantages, so here's another point of view: Living frugally might negatively affect your social life. For example, if your friends like going out for expensive dinners, choosing not to join may damage your relationship. Appearing to be rich, for example by driving a nice car, may increase your ...


16

The big financial disadvantage is likely to be the risk that the low priced home you purchase appreciates more slowly (or declines in value) compared to the better house you could have afforded. This is obviously very location dependent but there are, for example, plenty of neighborhoods in Detroit where home prices haven't recovered since the 2008 ...


1

The obvious downside is in relation to home ownership. If you take out a bigger mortgage to get a more expensive house you will get a larger capital gain when you come to sell the house. The return on investment may not be quite as good as stocks, but it is far cheaper to borrow money to buy a house. Many lenders won't lend you money to buy stocks at any ...


69

It's important to differentiate between "living below your means" and being smart about money. Buying a used car with low mileage is generally a smart financial decision considering every car becomes a used car the second you drive it off the lot. Financially, there are only advantages to living below your means. You will save more money which can be ...


14

The downside to living below your means, is that you don't have the same level of luxuries attainable if you lived at your means. You may also have fewer opportunities. This can impact your life in many ways, including financial. Living in a worse area to save money would be the most common example where the benefits may be deceiving. e.g. your commute ...


7

My best guess would be: Liability. If someone sues "you" for something that happens at a certain property, they're really suing the company which owns that property. In the event that the company loses the lawsuit, you liquidate that property to pay off the judgement while retaining all of your other property.


0

Turns out in my specific case the condo is only 3 units large. Both myself and the other two owners want to be able to rent out single rooms. The language in the documents was boiler plate as the builder had just finished constructing the property. As we, the 3 owners, ARE the condo association for that condo we kind of make the rules. All of us are ok with ...


5

This is not unusual. Many condo associations are very interested in how many properties are rental properties. Even before the growth of extremely short term rentals, they knew that having too many rental properties could limit the ability of potential owners to get FHA loans. Is this the same thing as Single Room Occupancy laws, or is it something ...


1

A condominium unit includes the ownership rights to access the common areas. The point of this language is that it explicitly prevents you from leasing your private area of the condo to a tenant, while simultaneously not renting to your tenant access to common areas such as the hallways (you wouldn't do this) or amenities like a roof deck, storage room, etc ...


0

The revised income tax rules, few years ago... Loss in house can only be adjusted against gain in house property or other capital gains. It can't be adjusted against salary or interest income


2

This question splits into a couple of parts, which I will answer one by one: Where to keep the money: This depends greatly on how long you think you will need to store the money. Short Term If you are storing it for a short period (2-6 months) I would suggest just using a current account. You will not earn much interest but you are also unlikely to lose ...


7

You will have access to the timeshare 1/52 weeks of the year. Let's make some simplifying (and fun!) assumptions: The seller works at cost: Owning 1/52 of a timeshare costs 1/52 as much as owning the whole thing. Uncle Sam really likes you and you don't pay tax on the timeshare. Price and maintenance is equally weighted: You pay 1/52 of the cost and 1/52 of ...


1

The sales department of the timeshare company is trying to convince potential buyers that the site is desirable, that the costs are reasonable, that the benefits are amazing; and if you get tired of going to the same condo for the next 20-50 years it is easy and cheap to trade into another location; and if you ever wanted to sell you are getting such a ...


10

There are 52 weeks in a year . So if one week's asking price is $50K that implies that the apartment price is 2.6 million Dollars and $1k per year maintenance fee means that the maintenance cost is 52K per year. It is an overly priced. You are paying in perpetuity if we assume 5% on 50K = $2.5K for cost of the money and $1k in maintenance ( that will go up ...


1

Though I've stayed at them, I don't know anything about current rates for timeshares. With that said, ignoring the potential that $50k invested could grow to as well as inflation, etc., if you divide the cost of the timeshare by 50 years and add in the annual maintenance fee of $1k, you'd have $2k per year to spend on a vacation every year for the next ...


4

That $1000/week is $143/night. Then -- for math purposes -- assume that you'll use it for 20 weeks. That's another $50,000/20=$2500/week, for a total of $500/night for one week/year. Plus interest on the $50K loan, the opportunity cost of what you could have done with that $50K, taxes, maintenance, etc, etc and all the other fees that the property ...


3

Tax considerations are top of the stack You seem content to collect the money, pay the tax, and then decide what to do with the money. That is offbeat enough I'd even use the word "wrong". You need to talk to a tax lawyer or CPA who does not sell or recommend investments. (investments sold by advisors pay sales commissions, and they are inculcated to ...


0

Who else have you told? Strongly suggest you keep the win on the quiet and tell as few people as possible. If you have already told a lot of people or if your win was publicised by the source, then anticipate a line of visitors to your door asking for a hand out. They might be family, distant family, former coworkers, Ex-partners, schoolmates, or even ...


2

Firstly, congratulations - don't spend it all at once :) Seriously though I'm with your wife. Always pay off your debts first. There's a good deal of satisfaction to be had from the feeling of not owing anyone any money. After that, despite your relatively young age, I'd be looking at investing the rest (except enough for a really good holiday, perhaps) for ...


5

Change the property. In the US there are ways to roll an investment property ownership to another more expensive property without paying capital gains on the first one (deferring until the sale of the next property/properties). If that is an option in Australia, I would use between $1,000 and $50,000 to buy a new rental property in an area that you ...


17

I'm going to be a bit practical here. Good for you for wanting to give to charity, but I'm going to ask you to hold off for a bit. Warning, Will Robinson, Warning! As happens occasionally on this site, people are scammed into thinking they are getting a bunch of money and aren't actually going to get that money. Don't spend Any money until you get paid ...


7

If your investment property is worth $900K now and you foresee it going down in value, why not sell it now and buy another one (or two) when the market bottoms out? Your wife wants to reduce the risk in your life. If it were me, which of the 3 halves of your brain would I listen to? Not #3; saying "to hell with it" and just buying an expensive house where ...


35

What you do with your income, and with your windfall, should be based on your retirement goals, which you have not mentioned. For many people, a paid-off residence and $1M in the bank would mean retirement could already start. But it seems your lifestyle (young children, Porche 911, etc.), won't quite allow for that. So you acknowledge that you will be ...


54

First congratulations and well done in both your salary and investment. Hopefully there will be more of this in the future. First I applaud your initial approach. Give some, spend some, save some. The disagreement with your wife is standard. One member of a partnership tends to be more conservative than the other; the disagreements help bring balance into ...


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