[benj111]

Not really for tech professionals exclusively. His reasoning should really be replaced by: 0. Get a well paid job.

Theres also this "Bad debt is the likes you have on a credit card. It's almost always accrued on a depreciating asset (for example, a new TV) and it's very often at a high interest rate"

Why is depreciation always mentioned as a problem of bad debt? My house will depreciate if I don't maintain it.

Surely bad debt is a combination of interest rate, and whether you actually need, and can afford the thing you're buying on credit.

[kd5bjo]

Housing debt is a little special because you have an obligation to provide yourself and your family shelter, so your best alternative is rent instead of going without or delaying the purchase until you can save enough money to buy it free and clear.

In general, debt is good if having it is cheaper than the alternative. The way that often happens is if the asset you buy with the debt is worth more, in income or appreciation, than the cost of the debt service. If the alternative also requires you to spend time or money, though, that alone can make debt worthwhile.

[benj111]

As I said, bad debt is a combination of whether you actually need, and can afford the thing, and interest rate.

You need a house, so an affordable house would be fine, one that you cant afford isn't.

Yes an appreciating asset shifts the balance somewhat, but doesn't inherently make bad debt good.

I suppose its best to look at where each outlook ends up? The appreciating asset = good view would suggest you buy the absolute most expensive house you can get. I would suggest you look at what you need and actually can afford.

Edit: Spelling

[sokoloff]

An appreciating asset bought with leverage provides one of the most readily available means to go from "I am in the bottom quartile of net worth" to "I have at/above the national median net worth".

I did buy basically the most expensive house we could afford (slightly less than the most expensive we could qualify for) in 2007 in a desirable city. That decision (vs continuing to rent or buying a $500K condo in that city) has likely added more to our net worth than our working for the last decade did. We bought it as a place to live and raise a family, but the financial upside (as yet still an unrealized gain) is large enough to not ignore.

[benj111]

That's with the benefit of hindsight though.

Were you thinking the same in 2009?

[sokoloff]

For us? Yes. We were still thinking that this is a good place to live and raise a family (that we just started that year).

On the money side, I continued to believe throughout the GFC that Cambridge, MA was going to continue to be a desirable place to live and work. I don't think the Zillow guesstimate on our house ever fell more than 5% below our purchase price, which was vastly better than our 401(k)s and brokerage accounts. (I changed my personal finance tracking spreadsheet in 2013, so I don't have records of house price estimates prior to then to confirm and Zillow only seems to go back 10 years.)

[kd5bjo]

Well, it should be noted that appreciation only matters in this equation in the case of a sale. The idea of moving in order to liquidate assets isn’t something palatable to me, so I treated my home purchase like any other product: I bought the cheapest one that meets my requirements.

As long as the numbers work out, though, It does seem entirely reasonable to take a loan to buy a house with the intent of renting it out for income. If the rent you receive can cover the maintenance and loan interest, you can sell it on again any time you need your capital back and bank the appreciation (or lose the depreciation, prices move both ways).

[ikeboy]

As money is fungible, there's no such thing as bad debt or good debt. You can only look at an overall debt/cash/asset position, not debt is isolation.