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by asaph 2600 days ago
The difference is that you can ride out housing market downturns until home values recover but if you bet it all and lose at the casino, the game is over. Even though the housing market drops 20% in your example, you still have a place to live and your monthly cash flow is unchanged. Just be patient, and you can recover it all.
2 comments
nostrademons 2600 days ago
...assuming you also keep your income. If you lose your job (and job losses and housing downturns are highly correlated), you're looking at foreclosure and losing everything, along with a 7-year blight on your credit report.
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akvadrako 2600 days ago
Even if you don't own a home you need to continue paying rent, so in either case you can't be jobless longer than your savings allow.
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nostrademons 2600 days ago
Right, but if you're evicted from a rental your loss is limited to your security deposit. All past rent paid is already a sunk cost, analogous to interest on a mortgage. If you're foreclosed upon you lose any accumulated equity in the house, and have to start again from zero.

It's very similar to margin trading on a stock brokerage, except that margin accounts are generally higher interest and not tax-deductible, while getting margin-called does not affect your credit. In both cases, you forfeit accumulated wealth built up if the market moves against you.

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twblalock 2595 days ago
Your security deposit is not a limit on your liability. If you cause more damage, or owe more money than your deposit covers, your landlord can sue you for the remainder and has a good chance of winning.
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dominotw 2600 days ago
>you can ride out housing market downturns until home values recover

not if you owned a house in detroit or any number of downturn cities.

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asaph 2600 days ago
Not so fast! Even Detroit is recovering.

https://www.trulia.com/real_estate/Detroit-Michigan/market-t...

Perhaps patience will be rewarded in Detroit too.

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dominotw 2600 days ago
https://en.wikipedia.org/wiki/Sunk_cost

why do they have to hold on to some hope of price incrase just because they bought a house. Instead of having the freedom to choose the best investment like everyone else.

Sure hold on to it if you really think its the best investment for your money( i really doubt detroit house is best you can do with your money), not because of some sentimental value.

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