Why your house is NOT a terrible investment (or at least my house)
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2014 Sep 5, 7:57am 41,456 views 117 comments
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Yes, the $1.128M looks right. Over 30 years.
Right, which means you committed to spend something close to $2M. In order to call this "owning", though, you didn't spend 1.128M over 30 years, you spent it immediately upon signing the contract and getting the money out of Escrow or whatever method of money transfer was used. So you spent that money up front and committed to pay interest. That's a big hole. Even just the down payment is a big hole. If you had spent all that money conservatively over the same time in the stock market, or even half that money, where would you be financially?
Twenty years from now, I would have $300K left on my mortgage. At a 1% annual increase, $1.2M in value.
So your "1% annual increase" is a much more reasonable suggestion based on historical data. What you wrote as a title for this thread and what you suggest by your recent sudden rises in equity are less reasonable.
Making an argument against renting based on short-term gains in housing doesn't make sense.
Similarly, if I wrote on patnet about how much money I've made in the stock market since 2008 and suggested that was a reason to rent, I would be unreasonable. I can't reasonably expect to make similar percentages for thirty years.
So I'm just making a decision to rent for the long-term based on as much information as I can comprehend and calculations that give some idea of how renting and buying compare.
Plus, I just got really lucky and haven't had any rent increases since 2007.
But you had shelter.
Why must we have SOMETHING more than a roof over our heads to show for the money we pay for a roof over our heads?
Of course. Renting or "owning' (aka renting from the bank) is shelter.
However, the difference is with renting, you are paying for shelter over a certain time period. No property taxes and no maintenance.
But also, not building any equity, which on a home such as mine is for the first 7-8 years, 1/3 of the mortgage, and more as time goes on. That's not small potatoes off of a $3K/month mortgage. And with a large enough deduction, you get most if not all of the property taxes back for a long period of time.
In my neighborhood, I couldnt get something nearly as nice as mine if I rented (minus the property taxes and maintenance) for the same price (see above in the thread).
So if you are paying for shelter and the amounts are equal, which would you rather have? Renting and giving all $3K to the landlord, or "owning", and getting a 1/3 rebate back when you sell the home?
JH
2014 Sep 25, 7:52am
amazing you are still stuck on the idea that you are paying $3k, when you are paying over $4k
Right, which means you committed to spend something close to $2M.
Over 30 years, my mortgage will be in the $1.1M range. I pay property taxes, but a lot of that is refunded based on all my deductions. Then there is maintenance (figure $200K over the life of the home) and insurance on the property ($25K over a lifetime; I pay $600/yr, and it will go up over time). I think the number if closer to $1.4-$1.5M than $2M. When the house is paid off, I get my $1.1M back if I sell minus realtor fees. This assumes no increase.
If you had spent all that money conservatively over the same time in the stock market, or even half that money, where would you be financially?
True. I invest in the stock market too and believe in it long term. However, I still need shelter. I would have to pay $4K in my hood to get something comparable now rather than $3100, taxes, insurance, etc. That $4K will surely go up over 30 years.
Longer term, wouldnt I be better having a mortgage and investing the difference between that and rent over the long run? The home isnt an investment so much as a way to diversify your assets.FunTime says
What you wrote as a title for this thread and what you suggest by your recent sudden rises in equity are less reasonable.
What I wrote in the title is "my house", no one else's. It's also a snapshot in time. As I have said over and over, one size does not fit all. Same thing for renting. You might have cheaper rent now, so rent, but over the long run, the rent will almost certainly go up. With owning, the mortgage stays the same--it is property taxes and fixing the house and insurance that go up.
Run the numbers and determine what is best for you in your circumstances, at this time and for the forseeable future.
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I know the history of this site in terms of many being in favor of renting vs owning. My own experience with owning vs renting is different.
I live in a beach community in LA. Bought in 1999 for $329K, sold in 2008 for $620K (after renting out this place for one year to college students). At the downturn, houses here lost maybe 15% in value, tops.
Rented from 2007-2011. Burned through $180K in rent, or $3800/month.
Bought again in 2011 for $799K. My place now has an approximate valuation of $1M to $1,050,000. To rent a place similar to mine, we are looking at about $4K/month.
So in a period of 39 months, my place climbed in value (on paper, mind you) $200K-$250K (let's say $225K). I put in an additional $20K in improvements, maintenance, etc. My property taxes are $850/month, but I get nearly all of that back from the tax deduction for home loan interest and property tax deduction. My mortgage runs me $3077/month, and that amount is on a 30 year loan at 4.25%. Principal paydown each month is about $1K. Interest alone is about $2100/month.
If I sold it today, after 5% commission, I would net $175K of increase in property value. Taking out $20K of improvements and maintenance, it is now $155K. Over 39 months, that's about $4K/month in profit. Again, assuming I sold today, I am making about $1900/month ($4000/month profit-$2100/month in interest) to live here.
In the same period, I would have spent $156,000 in rent. That's a $230K swing in just 39 months! (making $74,000 vs paying $156,000) Even if I dont sell now, I will have spent $102K in interest and improvements, which is better than $156K in rent.
I've been incredibly lucky with real estate. (had some sense on buying and selling at the right time too, but better to be lucky than good)
If I stay here for the next 27 years of my mortgage, other than property taxes, I'm locked in at $3077/month + maintenance on a place that is now 13 yrs old. Who knows what $4k/month in rent will look like in 2041, but it will be a lot more than $4K!
For me, owning has been much better than renting. Each individual has a different experience. One size does not fit all.
#housing