patrick.net

BayArea says

For most people, housing is the best investment they will ever make because it takes far more know how and far more discipline to make it any other way.

I'm sure a lot of homebuyers here could tell you about knowledge they wished they had before buying. Also, as all assets mentioned are valued in dollars, the same overall risk is inherent in both.

MrMagic says

The rest of the country (like 98%) isn't Silicon Valley. Come out and visit where the smart people live. Your bank account will appreciate it! That $2MM house in many other parts of the country would be a $400 - $500K house, with a $2K mortgage payment.

Wrong! The term is "shack" not house. :-)

Believe me, I surf the Zillow and Trulia sites from time to time. My house would be under $150k in most of the rest of the country. Actually, my house would have a negative value equal to however much it would cost to bring in a bulldozer and mitigate the lead paint and asbestos cleanup. An empty lot would be more valuable.

Then again, I was lucky to buy at a pretty good time — early 2000s. I never went below purchase price in the housing downturn and am now nearly 3x purchase price. Before I paid it off, I looked at the house as a highly leveraged and thus highly risky gamble. Now, I can't really believe there are any more gains to be had. Time to retire, sell, and flee the state.

Herewith another bit of grist for the mill on the subject.

Whether a house/condo is a good investment or not would largely depend on 1. location of the house/condo 2. how you pay for it in the first place.

Does anyone really believe that you would have made a good investment if you bought a typical house in the Bay Area paying cash out of your pocket right now?

I don't believe that. The reason is that in a place like Santa Cruz the median property is too expensive compared to the median wage. The people who rent use their wages to pay the rent. Median household annual wage in Santa Cruz (reports vary) let's say $77,000. Gross /12=$6417 per month gross income. After taxes thats going to be about $4400/month take home income. Let's say the "household" spent up to 50% of their take home income=$2200 per month rent is what they can "afford". This is higher than the recommended 25% of take home pay of course, but "Santa Cruz is so beautiful it's worth it!" etc. The rent paid by the median household in Santa Cruz would be $26,400 per year.

The median home in Santa Cruz is $910,000.

So, let's assume you don't want to collect chump change for your place that you just paid $910,000 for in cash. What's a good amount? 9% or 10% ?

How can the workers in Santa Cruz pay you $90,000 per year in rents?

Buying a home in an expensive area with your own money sounds like a bad idea to me. Paying for it over decades with borrowed money may be what everyone commenting is assuming.

clambo says

Whether a house/condo is a good investment or not would largely depend on 1. location of the house/condo 2. how you pay for it in the first place.

If it provided stability and a good environment to raise your kids without stressing out everyone from over-paying / over-borrowing / over-commuting, it would be a good investment. Even if by your figure of merit it's not a good investment.

clambo says

Whether a house/condo is a good investment or not would largely depend on ... how you pay for it in the first place.

Not to be too pedantic, but how you pay for a house (outright verses with mortgage) determines your leverage and so determines the magnitude of your investment goodness or badness, not whether the investment is good or bad. The good or bad is determined mostly by appreciation (or lack thereof) and/or ownership costs relative to rental costs. If you have nice appreciation, it's a good investment regardless of how you pay; if you have depreciation, it's a bad investment regardless of how you pay (but mailing in your keys to the mortgage holder might be able to limit your downside on a bad investment).

In the scenario of paying cash and not borrowing to buy the place, taking out $910,000 from my investments in stock mutual funds to buy a house that I cannot possibly rent out for $90,000 a year seems very silly.

Of course, to move the computer mouse and sell financial investments to put that $910,000 into a cash account I would owe huge taxes and end up with less in the first place.

Or, maybe I was just oddball enough to have $910,000 sitting in a money market checking account making zero interest. Maybe I found a suitcase of cash, like in "No country for old men."

I know of cases where it was a good investment to buy with cash; those happen at times like the fall of 2008.

1) Every time the "rent vs buy" topic comes up, I'm always amazed at how many people try to reason their position with overly simplistic math that usually only compares 1 or 2 factors (i.e., "my mortgage is X and your rent is Y, and X > Y so ha!"). Cmon, use the damn calculator and get realistic answers: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
2) My rule of thumb for discussions about financial calculations: if they don't consider opportunity cost, it's usually not sophisticated enough to get a realistic result.
3) Many landlords are not mathematically rational decision makers, and they don't charge a rent based on what it would cost someone else to offer the same house if they were to buy it at todays prices paying todays tax rates while considering what a good CAGR would be on their capital. Instead, these landlords happened to own the house somehow, such as an inheritance, and often have very low property tax, and this allows them to rent the house at a very low cost - a cost that another landlord could not duplicate if they had to buy the same home tomorrow. This situation is common, and greatly skews the price to rent ratios of certain regions, and the SF bay is one of these places. Yes, most of them should almost certainly sell the home and reinvest the money elsewhere and enjoy superior returns, but many don't. Some have valid reasons that may not be apparent (sentimentality, wanting to help their tenants, or maybe they're about to die and want to let their heirs enjoy the step up in tax basis that occurs at death - avoiding tax on 1 million of capital gains, etc...), but I think most just don't know better.