Young couple with $783k debt (shows how poorly people manage their own finances)

Patrick.Net ^ | 08/30/2011 | Quant HF Manager

[SeekAndFind]

Articles like the one I'm referencing below demonstrate why there are still bubble home prices in certain areas. This particular article also shows how poorly people manage their own finances, and does a good job showing how much the country's people are still relying on inexpensive and easy to obtain debt.

The article is called "The Financial Fix" (that ought to be in quotes, btw, because it is anything but a "fix" that this advisor gives them) that appears in Money Magazine, September 2011 issue, Page 42.

Where do I start??

This 31 and 32 year old couple have $783,000 in debt! The debt is made up of a mortgage on a townhouse, a mortgage on a condo, plus car and student loans. First off, that is a terrible position to be in. They are in way, way over their heads. But it gets worse.

The wife is expecting their first child so they only have the husband's $93,000 / year income. They say they are "barely breaking even on [his] salary"...uhm, no, you are not breaking even at all. You are losing ground (to debt and financial slavery), and fast. If they could apply all $93k of his income toward all their debt, it would still take them 8.41 years to pay it all off! OMG. That's attrocious.

"They decided to keep their old condo as an investment, but so far it's been a cash drain." Silly people, you ought to stick to consulting or whatever it is that you do. "Real estate" as an investment if often highly overrated, as the returns on residential real estate have, on average over long periods of time, only barely beaten inflation.

What are you doing buying a $410,000 townhouse in Leesburg, Virginia? Anywhere in Virginia, for that matter? That's bubble pricing if I've ever heard it. Making matters worse is that they still own a mortgage on a condo. Why does a young, white collar dual income (previously) no kids couple have to buy a townhouse or condo in Virginia? Because we are still in a significant housing bubble in multiple areas of the country...and Leesburg, Virginia is definitely one of them.

These articles never fail to count "home equity" under the "Assets" section of peoples' financial situation. It says this couple has $66,000 in home equity. Bwah, ha, ha. Sure, right. Did you get those figures from Zillow? Or better yet a local realtor? Are you factoring in selling costs to liquidate all of that "equity"? Of course not. A quick off the cuff guess is that they are sitting on about half that much "equity."

If the tenant skips out on paying them rent, the article tells how the young, naive couple will be on the hook for mortgage payments totaling 42% of their income (!!!), not factoring in maintenance and repairs. Gulp!! Gasp. That's a mighty scary position you are putting your family in, sonny. And btw, I'd definitely factor in maintenance and repairs.

These young kids are financialy screwed because they are trying to live "the American Dream" that someone else told them they should. Why do you have to have a kid if you cannot afford it? Parenting magazine just quoted a new study saying that the typical cost to raise a child to age 18 is approximately $190,000. This couple is already in a financial hurt locker, and now they are adding a newborn child to the picture. Wanna bet that they'll "have to" have a second child? I've seen it too often.

And why did they have to buy a house? (a condo) And then another house? (a townhouse) This is a great example of the real estate pathology that many people still have today.

Since the "financial advisor" gave them terrible advice (let me guess, the financial advisor also thinks real estate is a good investment? And has hundreds of thousands of dollars of debt to her name, too? That would explain the horrendous advice to this young couple), allow me to intervene further by offering some sound financial advice for them:

1. Sell your new townhouse immediately 2. Sell your condo concurrently 3. Sell your car / cars and pay off the loans immediately 4. Use any remaining "equity" funds from above sales to pay off any and all debt 5. Rent a nice apartment or home for a couple of years 6. Buy a conservative used car with cash

That's really only a beginning but still much better than the article offered for them.

[oldbrowser]

And why did they have to buy a house? (a condo) And then another house? (a townhouse) This is a great example of the real estate pathology that many people still have today.

Many people became wealthy doing exactly the same thing, 20 or 30 years ago.

[ScottinVA]

Anywhere in Virginia, for that matter?

That's more in the north. Many good deals on nice, conventional homes can be had here in Hampton Roads at great prices.

[freeangel]

“Why do you have to have a kid if you cannot afford it?”

Good question. Why do welfare single moms have multiple children when they can’t afford it?

[ScottinVA]

A condo, then a townhouse. Mistake x 2, especially in this market. Also, Leesburg is one of the most expensive locales here in VA.

[cripplecreek]

When the husband from the young couple was murdered on Falcon lake, some pointed to them living the high life as evidence of them being involved in criminal activity.

What I saw was evidence of a young couple playing the debt game.

[douginthearmy]

We need a federal agency to regulate and manage personal finances. wait for it.. it’s coming.. the same excuses they use for regulating fast foods.. costs to taxpayers..

[oh8eleven]

These young kids ...
Young kids? At 32 I had three years in the service, a year in combat, a college grad, married ten years, had two kids, bought & sold three new cars and two houses.
The last thing I considered myself was a young kid.

[SMARTY]

People, especially young people, forgot how to do without or to wait until you can afford a thing before they buy it.

People need to de program W A N T I N G!

That means, step away from the TV... it is a devise made to serve ONE purpose... to create NEED.

Sponsors are what the TV is about, so you can de program the whole ‘I WANT’ thing by just tuning it out.... it is worlds better to live without all that VISUAL and MATERIAL racket (that is TV) in your life ... . The worst possible thing adults can do is to plant their kid in front of the TV..the kid never has a chance. So, instead of using the TV for a babysitter, spend some quality time with your kid and he will be better off, and so will you.

[oh8eleven]

Why do welfare single moms have multiple children when they can’t afford it?
Sure THEY can afford it - because YOU pay for it.

[Thunder90]

My advice:
Sell everything at a loss (Liquidation). Go to a Chapter 13 BK plan to pay off the rest of the debts. Use the student loans after the chapter 13 plan is over to reestablish credit.

[pgkdan]

What are you doing buying a $410,000 townhouse in Leesburg, Virginia? Anywhere in Virginia, for that matter? That's bubble pricing if I've ever heard it.

The author should refrain from offering others financial advise until he learns what he's talking about.

[Texas resident]

$783,000 in debt with a $93,000 income.
Sounds like the next appointee to the baraq regime.

[Presbyterian Reporter]

“”This 31 and 32 year old couple have $783,000 in debt!””

---

I beg to disagree with the author. Mortgage interest rates today are 4%. They should have no problem paying the bank.

[listenhillary]

Sounds like our current government’s income to debt ratio.

[listenhillary]

If they are at 4%. It is very hard to refinance if they are already in this situation.

[MrB]

That begs the question as to why, when they were at, say, $500k in debt, did someone else loan them the next 10k, 20k, etc?

[org.whodat]

You be correct. It is really a silly comment, young kids. LOL.

[SeekAndFind]

RE: Mortgage interest rates today are 4%. They should have no problem paying the bank.

I used this mortgage calculator based on 4% interest for a 30 year loan. Here is the result...

Year	Beginning Balance	Interest	Annual Payment	Ending Balance
1	$783000	$31069	$44858	$769211
2	769211	30507	44858	754860
3	754860	29923	44858	739925
4	739925	29314	44858	724381
5	724381	28681	44858	708204
6	708204	28022	44858	691368
7	691368	27336	44858	673846
8	673846	26622	44858	655610
9	655610	25879	44858	636631
10	636631	25106	44858	616878
11	616878	24301	44858	596321
12	596321	23463	44858	574927
13	574927	22592	44858	552661
14	552661	21685	44858	529488
15	529488	20741	44858	505370
16	505370	19758	44858	480270
17	480270	18735	44858	454148
18	454148	17671	44858	426961
19	426961	16563	44858	398666
20	398666	15411	44858	369219
21	369219	14211	44858	338572
22	338572	12962	44858	306676
23	306676	11663	44858	273481
24	273481	10310	44858	238934
25	238934	8903	44858	202979
26	202979	7438	44858	165559
27	165559	5914	44858	126614
28	126614	4327	44858	86083
29	86083	2676	44858	43901
30	43901	957	44858	0

Close to half of their income goes to pay off the houses/condos they are mortgaging on.

That of course is ASSUMING one or both of them don't get laid off. If this happens, they are royally screwed.

[chris_bdba]

You are exactly right.They didn’t see that Mom and Dad started out in a “starter” home that was probably less than 1200sf and need work.Most feel that is beneath them.It is no wonder so many will end up bankrupt.