The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: joenorm on April 16, 2019, 07:52:29 AM
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I've read on here not to think of your home as an investment. I sort of understand this.
But here on the West Coast doesn't everyone, at least in the back of their mind consider their home in this way?
Hard not to when your home has appreciated triple in 5 years. At what point does it make sense to cash out even if yo enjoy the home?
What is so wrong with a home as an investment, anyway? It just seems like good foresight to me, and a little luck of course.
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Will west coast homes triple in value again in the next five years?
Recommended reading:
https://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/
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To me, the biggest problem with thinking of your home as an investment is the difficulty of utilizing the cash value of the "investment." Are you planning on moving into a cheaper home at some point? If not, you'll never be able to live off the equity in the home.
People also often underestimate the actual carrying costs of a high value home. I have 100% of what I've spent on my house tracked and it's pretty breathtaking. If I was intent on owning my home as an investment, I would be doing pretty badly, and I'm frugal and bought well under market. Houses are expensive, especially in high cost of living areas.
But as has been said over and over, you need a place to live. Just don't count on using the equity in that place to live as a savings account.
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To me, the biggest problem with thinking of your home as an investment is the difficulty of utilizing the cash value of the "investment." Are you planning on moving into a cheaper home at some point? If not, you'll never be able to live off the equity in the home.
People also often underestimate the actual carrying costs of a high value home. I have 100% of what I've spent on my house tracked and it's pretty breathtaking. If I was intent on owning my home as an investment, I would be doing pretty badly, and I'm frugal and bought well under market. Houses are expensive, especially in high cost of living areas.
But as has been said over and over, you need a place to live. Just don't count on using the equity in that place to live as a savings account.
+1
Investments only matter if you realize the value.
Imagine if you had a 401k but then found out you couldn't use it in retirement until you died. Would you consider a 401k a good investment?
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I try not to consider my home as an investment, but since its value has outpaced my actual market investments for quite a while it can be hard not to sometimes. :P
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You have to live somewhere, so it doesn't matter if your home value increases 3x or even 100x. You only come out ahead if you downsize or move to a LCOL area, yet this is a one-off which relies entirely on capital appreciation to work.
The key to RE as an investment is the income it generates. Expecting capital appreciation is nothing more than speculating. May as well buy Bitcoin or gold - like owner occupied RE, these don't generate income and are speculative. Sure, you'll find people around here saying you can buy a rental property in a HCOL area that's negative cash flow because the [predicted] leveraged appreciation more than makes up for it. IMO this is playing with fire, and is part and parcel of the magical thinking about RE that has seeped back into the popular psyche with the long stretch of increasing prices since the last bust.
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Hmmm... I agree with everything that has been said above.... but just to be contrarian for the sake of debate...
I purchased an expensive home in an expensive location because it put me within a couple of kms of the high paying jobs. I got rid of my commute and had more time to spend with friends and to do sport and things I enjoyed doing with DW. My expensive home was an “investment” that enabled me to earn a higher salary and to have a better life. The returns were spectacular.
The above is all well and good....... but ..... now as I approach FIRE I want to cash in the money locked in that home, but this is not so easy as it means moving away from friends and cutting off the opportunity to earn a good salary if I ever need to again in the future.
If I don’t sell I cant FIRE. Deciding to sell feels like a bigger decision than quitting my job.
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The reason a home isn't an investment is because you don't get to choose when a downturn hits. And timing can become everything. Say you pay a million dollars for a home and some random number of years from now is when you are going to retire, move to Costa Rica and take a job holding a hammock in place. Ok, so 5 years before this retirement, the real estate market takes a huge nose dive and your house is worth $300k. As you creep towards that retirement date, you're still paying a mortgage and are under water. You hit the date and the good news is that the market has been in a strong recovery and now your house value has doubled. The bad news is that it's $600k and you still owe $685k on it. So not only is it not a stable investment, you're going to have to pay to leave it. Of course rents have followed house values, so you can't make anywhere near your mortgage payment by renting it out.
You might think this is crazy, but I've seen it happen twice in the Massachusetts market and had friends buy up without selling their old house because the newer, bigger house was such a bargain. But for some reason, none of them figured in that their smaller house would be reduced in value as well and most of them sat on the old house, making 2 mortgage payments for 3 years, then finally threw in the towel, used all of their savings and got out of the old house. And Mass never rose the numbers that CA has.
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The reason a home isn't an investment is because you don't get to choose when a downturn hits. And timing can become everything. Say you pay a million dollars for a home and some random number of years from now is when you are going to retire, move to Costa Rica and take a job holding a hammock in place. Ok, so 5 years before this retirement, the real estate market takes a huge nose dive and your house is worth $300k. As you creep towards that retirement date, you're still paying a mortgage and are under water. You hit the date and the good news is that the market has been in a strong recovery and now your house value has doubled. The bad news is that it's $600k and you still owe $685k on it. So not only is it not a stable investment, you're going to have to pay to leave it. Of course rents have followed house values, so you can't make anywhere near your mortgage payment by renting it out.
You might think this is crazy, but I've seen it happen twice in the Massachusetts market and had friends buy up without selling their old house because the newer, bigger house was such a bargain. But for some reason, none of them figured in that their smaller house would be reduced in value as well and most of them sat on the old house, making 2 mortgage payments for 3 years, then finally threw in the towel, used all of their savings and got out of the old house. And Mass never rose the numbers that CA has.
Do I get to choose when a downturn hits for my stocks? If so, someone forgot to send me the memo.
Timing can be everything when you're selling equity as well. The only real difference in your example is that many people borrow to buy a home while few borrow to buy stock.
:P
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I've read on here not to think of your home as an investment. I sort of understand this.
But here on the West Coast doesn't everyone, at least in the back of their mind consider their home in this way?
Hard not to when your home has appreciated triple in 5 years. At what point does it make sense to cash out even if yo enjoy the home?
What is so wrong with a home as an investment, anyway? It just seems like good foresight to me, and a little luck of course.
Housing is an expense, and like all expenses it is wise to minimize it. Buying a home can minimize your housing expenses. For one, a portion of your mortgage payment builds equity, which you don't get if you are renting. And your mortgage remains the same, while presumably rents will continue to increase. Additionally, it is reasonable to assume your house's value will increase at something close to the rate of inflation which isn't great. However, you only put 20% down (or whatever) but you get the keep the entire increase, so there is a bit of leverage there. For those reasons, a lot of people wind up with a lot of their net worth in their home. That's why you hear things like "stop throwing your money away on rent!" because for many people it turned out to be an investment, even if it wasn't a great one.
The key is you really have to drill down and look at the numbers. Sometimes it makes sense, not always though.
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Do I get to choose when a downturn hits for my stocks? If so, someone forgot to send me the memo.
No, but you can sell just a portion of your stocks. It's mighty difficult to sell just a portion of a house.
You also presumably have a bond portion of your liquid asset allocation, and can sell that instead when equities are down.
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This seems to be a persistent misunderstanding, but your home is definitely an investment. It generates income. If you live in the home, you realize that income in the form of imputed rent.
It can of course be a bad investment, but that's another story.
As I like to say, if your home isn't an investment, then what are the people who rent houses to you doing? Philanthropy?
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Your home is ABSOLUTELY an investment.
There's no question that it's an investment.
However, as per the reasons stated above, it's often not a very good or practical investment.
The point of the statement "your home is not an investment" is to combat the utter bullshit attitude that many people have of spending whatever it takes to get their "dream home", renovating the fuck out of it and justifying it because "it's an investment". Many, many, MANY people lose money on their homes. Many don't even realize it because they just compare purchase price to sale price and think "OMG, we made so much money!!!"
It's a statement to make people examine the *actual* value of their investment.
Look at the numbers closely. Look at the factors, timelines, and risks. Try to understand what *kind* of investment your home is and make the appropriate plans from there.
I have two homes right now and both are investments: my current townhouse because it will absolutely rise in value as the area gentrifies, and my new apartment because it will always be cheap to maintain and I'll probably live there until I'm 90, so it's an opportunity investment that frees up cash flow indefinitely.
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Do I get to choose when a downturn hits for my stocks? If so, someone forgot to send me the memo.
No, but you can sell just a portion of your stocks. It's mighty difficult to sell just a portion of a house.
You also presumably have a bond portion of your liquid asset allocation, and can sell that instead when equities are down.
These examples of yours are kinda confusing.
While it's mighty difficult to sell just a portion of a house, it's mighty difficult to rent out part of your equities . . . or to put some solar panels on your equities and sell power back into the grid to earn money each year. Each asset has different pluses and minuses.
I hold bonds, equities, and property. If my house price tanked and I needed money, I could sell bonds too . . . just like if equity price tanked.
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What about responsibly using the equity in ones house to make further responsible investments?
By responsible I mean not leveraged too far. I have recently refinanced my primary residence (cash out) to be able to build another house. Even if the market really takes a worst-case-scenario dump I believe I could get out of it without losing much.
So my home is now a tool for investing. And when I go to sell the gains are tax free.
I completely hear what everyone is saying though. Homes are crazy expensive and take an insane amount of mental and physical energy to upkeep. At least a lot of that upkeep is enjoyable, or at least I have tricked myself into thinking so :-)
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With imputed rent be sure you're looking at "profit" after expenses: mortgage, taxes, insurance, maintenance, depreciation, etc. Are you actually coming out ahead owning vs. renting? The NYT Rent vs. Own calculator is a good starting place. There are quite a few places, such as in my city, where renting is cheaper than owning.
The other issue with imputed rent is that in the end it's almost always accounted for as consumption. If you "invest" $100k in a new kitchen this will increase the value of your home and thereby increase the imputed rent, but then all you've done is given yourself a rent increase that's paid for with your increased imputed rent. Whereas $100k invested in something real would've yielded actual income. Consumption masquerading as investment leads people to do all sorts of nutty things. Hey, why not buy that luxury car...look how much I'm saving by not paying on a lease every month!
Again, what really matters is the rent vs. own calculation, and clarity on what you're consuming vs. real investment. Calling your primary residence an investment conflates a lot of things and muddies the picture. If you insist on thinking of your residence as an investment then at least treat it as such and do an honest assessment. I did this once a few years ago and I was stunned: Even though my house had doubled in value, after expenses it wasn't great and I would have been better off renting over the same period. I don't regret owning as there are other intangibles that make it a worthwhile expense, and it was helpful in keeping my living expenses relatively consistent over two boom cycles. But when all the dust had settled, it was consumption not investment.
IMO, it makes more sense to view your primary residence as an inflation hedge, a way to mostly peg cost of living at a given point in time, and as a way to make future expenses more predictable.
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. If you "invest" $100k in a new kitchen this will increase the value of your home and thereby increase the imputed rent, but then all you've done is given yourself a rent increase that's paid for with your increased imputed rent. Whereas $100k invested in something real would've yielded actual income. Consumption masquerading as investment leads people to do all sorts of nutty things. Hey, why not buy that luxury car...look how much I'm saving by not paying on a lease every month!
a lot of people assume that "investing" 100k in a new kitchen would somehow increase the value of the home by more than 100k. NOT TRUE. According to the data no home improvement projects offer a 100 ROI. Although if you DIY, you'll probably get a ROI, but then maybe you ought to get a part time job as a plumber, carpenter, etc. https://www.zillow.com/mortgage-learning/roi-home-improvement-projects/
The fact of the matter is that only about 20% of the properties value is in the land, and 80% is the building. The building is a consumable item, much like a car. The building deteriorates, goes out of style, become unsafe, inefficient, etc relatively quickly. The problem is that home-owners have a knack for spending lots of money and time improving and maintaining their properties to prevent them from becoming 1990's ford explorers and when they go to sell the property they dont account for any of that, they dont keep records of their expenses, or their time.
Everyone knows lots of people that have "made a killing" on the sale of their primary residence and that certainly does happen. If you know where and when its going to happen then you are super-human and you're already fabulously rich, otherwise you were lucky. More likely, those people put a ton of time and money into the property and then bragged about the difference in buying price vs vs selling price with no mention of any of the expenses, transaction fees, etc. Because home purchases are heavily leveraged and because of inflation it only takes small gains in appreciation to look like big gains on the surface. If speculation is your thing, there are more convenient ways to do it than with houses. Noone likes to talk about how little they made from a sale of a property, noone likes to track time and expenses and treat their primary residence as a business, I dont blame them.
This doesnt mean home ownership is a bad thing. I own a house because I like to live in a nice house that is owned by me and SOMEDAY it might be cheaper than renting due to inflation. I dont see it as an investment at all, maybe as a very restrictive savings account. Imagine a savings account with enormous annual fees in which you could only take all the money out at once with 8% fees on withdrawal, that;s probably a good way to think about your primary residence equity.
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The other issue with imputed rent is that in the end it's almost always accounted for as consumption. If you "invest" $100k in a new kitchen this will increase the value of your home and thereby increase the imputed rent, but then all you've done is given yourself a rent increase that's paid for with your increased imputed rent.
Putting aside the fact that spending $100k on a kitchen remodel is totally nuts, what you say here is true. When owning your own home, you are both the producer and the consumer. Don't consume more house than you need!
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The fact of the matter is that only about 20% of the properties value is in the land, and 80% is the building.
This will depend entirely on where you live and what kind of building exists. In a growing city in a good location, the land may be almost all of the value. In my neighborhood, people routinely buy older houses just to tear them down and build new ones (mostly duplexes/quads). The land/building ratio for these properties is obviously tilted way in favor of the land. But if you live in a rural area where land sells for a few thousand bucks an acre, almost all the value is in the building.
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Telecaster already said this, but I'll second it. I don't really see my home as an investment. I see it as the most financially optimized way I could figure out to accomplish my need for housing.
I live in Hawaii. Rent is pretty high. So are mortgages. We realized that if we bought a modest condo--the smallest thing we could tolerate with two toddlers--and lived in it for at least five years, we'd probably come out ahead from having rented a similar property for the same amount of time.
3.5 years in, the numbers bear us out. Our condo has appreciated by about $50k. We can afford the mortgage pretty easily. The longer we stay in this condo, the better the numbers look versus having rented the equivalent length of time (as long as home appreciation out here doesn't totally crap the bed for some reason). Our mortgage plus HOA fees cost exactly the same as the rent that I see other units in our building going for. Considering we've spent almost nothing on maintaining/upgrading our place above the HOA fees, I think it was a good decision.
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Considering we've spent almost nothing on maintaining/upgrading our place above the HOA fees, I think it was a good decision.
This is a common misunderstanding in upkeep/maintenance thinking among home owners. The math works out the same if you put $2,000 year into your place or $20,000 every 10 years. This is also sometimes described by RE investors as the 80/20 rule. Either way you are consuming the property every day even if you dont use it. You could do nothing for 30 years but your property will be worth shit then and there goes your appreciation, although if your goal is to die in the home by all means do nothing unless its critical for function or safety.
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The fact of the matter is that only about 20% of the properties value is in the land, and 80% is the building.
This will depend entirely on where you live and what kind of building exists. In a growing city in a good location, the land may be almost all of the value. In my neighborhood, people routinely buy older houses just to tear them down and build new ones (mostly duplexes/quads). The land/building ratio for these properties is obviously tilted way in favor of the land. But if you live in a rural area where land sells for a few thousand bucks an acre, almost all the value is in the building.
So, you are saying that people buy a plot of land with a building on it for say 80k and then spend 20k tearing the building down and replacing it with a brand new one? Replace 80k and 20k with any numbers u like. Do you live in a 3rd world country with very cheap labor? I think the difference in understanding between us is you are considering the ratio of land/value of the tear down property. I am considering the land/value ratio of the finished property. In fact a property with tear down building on it is often CHEAPER than the same property without a building on it at all since there is a lot of expense in tearing down a property and disposing of it, especially if it has asbestos which is extremely common on older buildings in the US. Unless the buyer is going to live in the teardown building I think you should be considering the total and final price building/land ratio of the final property that buyer will live in.
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Putting aside the fact that spending $100k on a kitchen remodel is totally nuts, what you say here is true. When owning your own home, you are both the producer and the consumer. Don't consume more house than you need!
The problem with human beings is that our needs (and wants) for a home change over time. For younger people that will get married/start a family etc the needs are growing so the home buyer is forced to buy and consume more home than they need to account for their changing needs (a growing family). Given the fact that RE transaction expenses are so high its often a good decision for these people to buy and consume more home than they need (waste) so that they will have fewer RE transactions. Probably not as good as renting if they wont own very long though. The average length of ownership for a home in the US is only 7 years! This is because needs (especially including location) change over time. 7 years + very high transaction costs = a lot of happy banks and RE agents.
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Putting aside the fact that spending $100k on a kitchen remodel is totally nuts, what you say here is true. When owning your own home, you are both the producer and the consumer. Don't consume more house than you need!
The problem with human beings is that our needs (and wants) for a home change over time. For younger people that will get marrie/start a family etc the needs are growning so the home buyer is forced to buy and consume more home than they need to account for their changing needs (a growing family). Given the fact that RE transaction expenses are so high its often for these people to buy and consume more home than they need (waste) so that they will have fewer RE transactions. The average length of ownership for a home in the US is only 7 years! This is because needs (especially including location) change over time. 7 years + very high transaction costs = a lot of happy banks and RE agents.
Yep. I'll own my own folly here from my pre-MMM days. We were DINKs and bought a 3/2 even though we didn't have a need for those other bedrooms for ~10 years. Why? Young and gullible, and the conventional wisdom was "buy as much house as you can afford." Total waste of money. What saved our asses was a manufactured housing shortage such that a ton of appreciation came relatively close to making up the difference. Pure dumb luck, would not want to try to reproduce.
The whole "it's an investment" thing is interesting. Calling something an "investment" is meaningless. What really matters is whether or not it's a good investment. IMO this has become a way for people to throw logic out the window to justify whatever they want. College is an "investment" so go 100k into debt for a Music Theory degree (real story from a few years ago, can't find it now). Or yes, even a 100k kitchen remodel.
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My partial solution to this was to buy a duplex. Bought right around the time we married with plans of starting a family, as (if) our needs grow we will get rid of the downstairs tenants and move into that part of the house. But its still incredibly wasteful since the house is still bigger than we need and we will have two kitchens and more bathrooms than we need. Kitchens and bathrooms are more costly to build and maintain/update then other parts of the house.
Another thing we havent mentioned is that these "home improvement projects" like the 100k kitchen arent leveraged and are paid for with cash so they have real opportunity cost. Frugal home buyers planning to buy a fixer upper really need to evaluate the difference between a finished home purchased with a mortgage vs. a cheaper home that needs work with the work paid for with cash. Almost always this is cash that could be used to invest via tax deferred accts lowering your taxable income. So you're losing the investment income + tax savings of not investing in retirement accts. + additional tax savings from buying a more expensive house that did not need the work and itemizing.
There is a lot to consider!
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OP here. Thanks for the responses.
This site has been extremely illuminating since joining.
It is really interesting dispelling some of the myths that are so deeply engrained around here, and the homeownership thing is a big one.
People will kill to own, thinking the value will only go up, and pour countless hours and dollars into the house along the way and never really keep track of what they spend. I am guilty of this, although I enjoy the creative outlet of home projects so it seems Ok.
Still nobody has touched on my post from earlier about using equity to make further sound investments. This is the way I still see a primary residence as a useful tool.
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The fact of the matter is that only about 20% of the properties value is in the land, and 80% is the building.
This will depend entirely on where you live and what kind of building exists. In a growing city in a good location, the land may be almost all of the value. In my neighborhood, people routinely buy older houses just to tear them down and build new ones (mostly duplexes/quads). The land/building ratio for these properties is obviously tilted way in favor of the land. But if you live in a rural area where land sells for a few thousand bucks an acre, almost all the value is in the building.
So, you are saying that people buy a plot of land with a building on it for say 80k and then spend 20k tearing the building down and replacing it with a brand new one?
No, they buy a $800k property and spend perhaps $250k to tear it down and build a new one, resulting in a property that's maybe worth $1.2M by the time they're done.
Do you live in a 3rd world country with very cheap labor?
Not exactly.
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The average length of ownership for a home in the US is only 7 years! This is because needs (especially including location) change over time. 7 years + very high transaction costs = a lot of happy banks and RE agents.
Over a 7-year time horizon, even if you're paying the full 6% commission when selling (you can do much better these days), that's a 0.86% hit per year. Yeah it's a cost, but if you were smart when buying, you should have at least 6% imputed rent and 3% capital gain per year, minus maybe 2-3% costs, so worst case you're still getting over a 5% ROI.
Of course, the caveat that you may not have been smart always applies.
(And just to preempt the predictable complaint about the mortgage payments, they're not relevant in this scenario since we're talking about returns on the full value of the property. If you leveraged for a rate lower than 5%, then your ROI is even higher. Just imagine we're talking about an all-cash purchase if you want to keep things simple.)
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The average length of ownership for a home in the US is only 7 years! This is because needs (especially including location) change over time. 7 years + very high transaction costs = a lot of happy banks and RE agents.
Over a 7-year time horizon, even if you're paying the full 6% commission when selling (you can do much better these days), that's a 0.86% hit per year. Yeah it's a cost, but if you were smart when buying, you should have at least 6% imputed rent and 3% capital gain per year, minus maybe 2-3% costs, so worst case you're still getting over a 5% ROI.
Of course, the caveat that you may not have been smart always applies.
(And just to preempt the predictable complaint about the mortgage payments, they're not relevant in this scenario since we're talking about returns on the full value of the property. If you leveraged for a rate lower than 5%, then your ROI is even higher. Just imagine we're talking about an all-cash purchase if you want to keep things simple.)
what about your expenses? surely there must be other expenses from owning a house for 7 years than just the transaction costs to sell it? And Ive never sold via a realtor but I think the selling costs go beyond realtor commissions. 0.83% is not chump change. I would never buy an investment with expense ratios anywhere near that high, its not necessary. I own a house but I dont consider it an investment, its a place to live with equity, the lower my housing expense the more money to invest in tax free/tax deferred investments. Also, if leverage is your thing there are lots of leveraged investment options with lower fees than your 0.83% per year with leverage too. Here is a leveraged S&P index fund with 0.90% expense ratio: https://www.proshares.com/funds/spxu.html
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Still nobody has touched on my post from earlier about using equity to make further sound investments. This is the way I still see a primary residence as a useful tool.
I'm really surprised that no-one had touched the definition that "Rich dad poor dad"'s author, Robert Kyiosaki, gave in his book, that primary residence house is not an asset (read investment), but a liability. Assets put money in your pocket, a liability - takes money out of your pocket. So, unless you rent your house and get back not only all your mortgage payments (that includes taxes and insurance), but also cover your maintenance and vacancies, it cannot be called an investment. It's a liability.
About your question. Yes, you could maybe use your equity in the future, provided your income is high enough to qualify for it (I, for example, have $200k in equity in my primary residence, but can't even get $80k out because my income is too low, so I use other ways to invest in my rental properties). But you could also rent instead of owning a house and save the money you don't need to spend on maintanence, insurance, taxes and interest, for your future investments.
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Spartana, you will undoubtedly enjoy this: http://mcmansionhell.com/
In my own neighborhood, we aren't getting McMansions. Most of the tear-downs are of not-charming houses that were built in the 50s or 70s and are weirdly out of place in a neighborhood that is rapidly going upscale. And they're being replaced by duplexes and whatnot that are actually very nice, though no doubt they'll be out of style in 20 years. Basically, because the land is worth way more than the buildings, density is increasing. And I'm fine with that.
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what about your expenses? surely there must be other expenses from owning a house for 7 years than just the transaction costs to sell it?
I tried to account for that in my example. 3% expenses per year gives you 1% for property taxes, 1% for maintenance, and 1% for insurance and misc. Those percentages are actually about twice as high as for the real estate that I own, but I'm trying to be conservative.
And Ive never sold via a realtor but I think the selling costs go beyond realtor commissions.
What costs did you have in mind, exactly? There are some additional closing costs, but they typically aren't that much, and buyers usually pay them. If the contract requires seller concessions, then that's really just price haggling.
Also, if leverage is your thing there are lots of leveraged investment options with lower fees than your 0.83% per year with leverage too. Here is a leveraged S&P index fund with 0.90% expense ratio: https://www.proshares.com/funds/spxu.html
I'm not sure how 0.9% is less than 0.83%, but whatevs...
Transaction costs are a big part of real estate. The game is to keep them low. In an efficient market, real estate isn't supposed to be better (or worse) than any other investment minus transaction costs and risk premium. But it's still an investment!
The whole point here isn't that owning your own home is always and everywhere a great idea, because it clearly is not. But it can be a great idea, it just totally depends. The question put forth in the OP was, "is owning your own home an investment", and the answer is clearly yes. Just don't be stupid about it.
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I've read on here not to think of your home as an investment. I sort of understand this.
But here on the West Coast doesn't everyone, at least in the back of their mind consider their home in this way?
Hard not to when your home has appreciated triple in 5 years. At what point does it make sense to cash out even if yo enjoy the home?
What is so wrong with a home as an investment, anyway? It just seems like good foresight to me, and a little luck of course.
Expecting any asset to appreciate in value at a rate significantly above GDP growth + inflation over a long time horizon, defies basic logic.
Saying that owning is more efficient than renting in the current, low-interest environment is true, in many areas. But to just buy more house than you need (assuming you're not renting it out to someone) because "a home is an investment" is unwise - you're paying mortgage interest, property tax, etc. - and to expect house appreciation, minus mortgage interest, minus property tax, minus the extra utilities, maintenance, etc. you're paying for getting a bigger place to be anything other than a net money sink is to set yourself up for disappointment.
If you're renting it out for an income stream, the discussion changes and the home becomes a money-generating investment. But for your personal house the "it's an investment" mindset can promote the wrong set of behaviors.
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I am a renter, so my perspective is probably not incredibly valuable...but I see this happening with my friends a lot at the moment. We are all young, in our late 20s, early 30s, and a lot of my friends are on the house hunt. I hear it all the time "we want this type of house, but we know that this other type of house is a better investment in the long run".....what?! How do you know that it is a better investment? I always just roll my eyes, because to me a home is just a place to live. It's expensive, but we all need one, whether we rent or buy. Thinking of it as an investment causes people to make choices based on an unpredictable/unrealistic *hope* that they will make a ton of cash if they sell it later on.
I'm actually hoping to move to a lower cost of living area this Fall, rent for a year and then buy a little house. The area I want to move to has a pretty decent rental market, but the real estate market is really inexpensive. I've talked to some friends about houses I've looked at, and they are all suggesting "at least 3 bedrooms, 2 bathrooms, because that's what families want." But...I'm just one person! My dream is to buy a little 800 square foot house, 1 bed/1bath, with a yard for my garden. There are actually quite a few houses like that in this city! I'm not thinking of it as my future investment, but only as a lovely little cottage I can come home to every night, small enough that I don't get overwhelmed cleaning it, and has everything I need and nothing I don't. If my needs change later on, I guess I can always find a different house...but I can't predict the future, and buying now for imaginary needs later, or imaginary house buyers who may want certain things just makes 0 sense to me.
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I am a renter, so my perspective is probably not incredibly valuable...but I see this happening with my friends a lot at the moment. We are all young, in our late 20s, early 30s, and a lot of my friends are on the house hunt. I hear it all the time "we want this type of house, but we know that this other type of house is a better investment in the long run".....what?! How do you know that it is a better investment? I always just roll my eyes, because to me a home is just a place to live. It's expensive, but we all need one, whether we rent or buy. Thinking of it as an investment causes people to make choices based on an unpredictable/unrealistic *hope* that they will make a ton of cash if they sell it later on.
I'm actually hoping to move to a lower cost of living area this Fall, rent for a year and then buy a little house. The area I want to move to has a pretty decent rental market, but the real estate market is really inexpensive. I've talked to some friends about houses I've looked at, and they are all suggesting "at least 3 bedrooms, 2 bathrooms, because that's what families want." But...I'm just one person! My dream is to buy a little 800 square foot house, 1 bed/1bath, with a yard for my garden. There are actually quite a few houses like that in this city! I'm not thinking of it as my future investment, but only as a lovely little cottage I can come home to every night, small enough that I don't get overwhelmed cleaning it, and has everything I need and nothing I don't. If my needs change later on, I guess I can always find a different house...but I can't predict the future, and buying now for imaginary needs later, or imaginary house buyers who may want certain things just makes 0 sense to me.
I'm not a real estate expert, but from what I've read, it's not a terrible idea to think about the resale of your house as a factor in the decision to buy it. I definitely think it's not wise to let that factor dictate a home purchase that is egregiously bad for you. I just think that if you're looking for a very small house, in the back of your mind you have to realize that later (and there's pretty much always a later--very rare to stay in the same place until death) it might be harder to sell, and that you should make sure it's priced accordingly.
I've noticed savvy people do this when they buy cars; they consider how the car holds its value as a factor in the decision to buy it.
If I were you I'd absolutely avoid a 3/2 house, and I agree that that would be ridiculous for a single person. But you should definitely consider the ease of later offloading the house you buy. Very scary to have a mortgage on something that's going to take years or an extremely low price to get rid of, should you need to get out of it.
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To me, the biggest problem with thinking of your home as an investment is the difficulty of utilizing the cash value of the "investment." Are you planning on moving into a cheaper home at some point? If not, you'll never be able to live off the equity in the home.
People also often underestimate the actual carrying costs of a high value home. I have 100% of what I've spent on my house tracked and it's pretty breathtaking. If I was intent on owning my home as an investment, I would be doing pretty badly, and I'm frugal and bought well under market. Houses are expensive, especially in high cost of living areas.
But as has been said over and over, you need a place to live. Just don't count on using the equity in that place to live as a savings account.
+1
Investments only matter if you realize the value.
Imagine if you had a 401k but then found out you couldn't use it in retirement until you died. Would you consider a 401k a good investment?
Indeed. As a result of a weird life insurance situation, despite having no dependents, my net worth would at least double if I died tomorrow. I don't count this toward my net worth since there is no way for me to access that money in question while still being alive to spend it.
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I've commented previously on this thread, so it pops up. When that happened today, my first thought was this: I live in a HCOLA. Zillow, which is pretty accurate in my area, thinks my [mortgage-free] house is worth $1.4M. Even if the market dumped 50% and I was forced to sell (not gonna happen), $700k on top of what we already have is more than enough to maintain our lifestyle in a helluva lot of places I'd be happy to live. IMO, that makes this fucker an asset.
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^ Again all of that is highly dependent on your location. There are literal falling down shacks in some Calif housing areas that are selling for millions. There are small 2/1 700 sf original homes that haven't had a property tax increase in years (decades) and only need minimal upkeep and repairs that would sell for millions. Those don't cost the original owner any more then a place in a LCOL area. And often cost them much less. Much less then renting too.
I've seen both ends of the spectrum. My sister bought a small place in Palo Alto in the mid eighties for about 100k. Today it is worth about 2 million. She has paid it off. I bought a place in Tucson in 2006 for 550k , today it is worth about 450k. I still owe about 260K.
She will not sell as should would only recoup about 1.5 million after taking her home owners deduction and California and federal capital gains taxes. I'm not sure I understand her reasoning because her net worth not counting her house is less than a million.
However, Since she has made 1.9 million in 35 years on her house while I have lost 100k in 12 years on mine, who am I to question her reasoning.
I guess the point is that neither one of us consider our houses as part of our networth. My sister , because she will never sell. Myself, because my home equity is less then 8% of my net worth , so why bother?
I suppose most people are some where between the two extremes, but home equity should only be considered if you are willing to sell.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent. And in exchange you pay a heck of a lot for maintenance, repairs, and upgrades while keeping a significant part of your capital tied up.
Further, the RE market of late has been taking on a lot of the aroma of 2003-2006. That didn’t end well.
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I'm really surprised that no-one had touched the definition that "Rich dad poor dad"'s author, Robert Kyiosaki, gave in his book, that primary residence house is not an asset (read investment), but a liability. Assets put money in your pocket, a liability - takes money out of your pocket. So, unless you rent your house and get back not only all your mortgage payments (that includes taxes and insurance), but also cover your maintenance and vacancies, it cannot be called an investment. It's a liability.
I absolutely hate that quote, enough to almost wholly discount the book and him as an author because of it, despite there being some otherwise sound advice there. Why? Because it wholly ignores the value of utility derived (ie imputed foregone rent). What's his suggestion then? Set up a corp, buy a home, have the corp rent to yourself, forego tax free cap gains, pay higher rent than carrying costs(with after tax money) so that the corp makes a profit, lose out on tax advantages, and have to pay higher overall fees due to increased costs for accountants and taxes?
People are piss poor at even accounting for investments, let alone evaluating them. So many people simply look at price paid vs price sold of a home, and call that their return.
The true calculation is something along the lines of down payment + tax/insurance/(forever) + periodic, varying interest paid + periodic principle paid - deferred (tax free) rent - final selling price - "pride of ownership" value, all adjusted for the time value of money, for varying terms, at varying interest rates.
Damn near all of those things are either unknown, or best guesses, or unquantifiable (pride of ownership). This makes a true investment calculation a rough guess at best.
There are $5m homes in Vancouver now renting for less than 0.1%/month. If it were a stock it would have a negative P/E, a Price/Sales of over 100, and negative growth. It *only* makes sense as a speculative investment which was the case for the last 15 years, but quickly not being the case as we see double digit YoY declines in the high end of the market. The vast majority of people are morons with money, and aspire to (or already) own homes. Because of that you see far greater swings in fundamental valuation metrics in homes on both the bull and bear side of the cycle, albeit on a longer time line since people are stubborn and have it in their head that homes only ever go up. So often in these cases (another Buffet quote) people will readily ignore the obvious until their diaper is so full it's overflowing from the sides.
Contrast that with other places where even if the 1% rule isn't in force, you're at least in the grey in between area where even if renting may be a few dollars cheaper, you can rationalize it away from a security/pride of ownership perspective. My feeling of the 1% rule is that it's a buffet style "margin of safety". Those few properties that meet it are largely "can't lose" ones where even if a few big things go wrong, you can still get by. Contrast with Vancouver/Toronto where in terms of an ongoing investment, prices are at the point where everything has already gone wrong, and the only hope of salvation is continued appreciation well above inflation and income growth rates. Not impossible, but it's the investing equivalent of drawing to an inside straight flush.
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I'm really surprised that no-one had touched the definition that "Rich dad poor dad"'s author, Robert Kyiosaki, gave in his book, that primary residence house is not an asset (read investment), but a liability. Assets put money in your pocket, a liability - takes money out of your pocket. So, unless you rent your house and get back not only all your mortgage payments (that includes taxes and insurance), but also cover your maintenance and vacancies, it cannot be called an investment. It's a liability.
I absolutely hate that quote, enough to almost wholly discount the book and him as an author because of it, despite there being some otherwise sound advice there. Why? Because it wholly ignores the value of utility derived (ie imputed foregone rent). What's his suggestion then? Set up a corp, buy a home, have the corp rent to yourself, forego tax free cap gains, pay higher rent than carrying costs(with after tax money) so that the corp makes a profit, lose out on tax advantages, and have to pay higher overall fees due to increased costs for accountants and taxes?
I'm a bit confused by your response. One one hand you seem not to like the definition, but on the other hand you seem to come to a conclusion that primary residence is not an asset. Beside the definition of asset and liability, I am not sure why would anyone use this book as a guide on investing, at most it's an inspirational piece and any reference on "how to" should be disregarded primarily because all real estate is local. Every state has it's laws regarding corporation, LLC and such, and in some places it might not work. Second, that was something the author suggested long time ago, current tax laws has changed (I think his advice might be illegal now), no book can keep up their advises with tax laws, by the time a book is written and published, it's irrelevant.
The true calculation is something along the lines of down payment + tax/insurance/(forever) + periodic, varying interest paid + periodic principle paid - deferred (tax free) rent - final selling price - "pride of ownership" value, all adjusted for the time value of money, for varying terms, at varying interest rates.
Damn near all of those things are either unknown, or best guesses, or unquantifiable (pride of ownership). This makes a true investment calculation a rough guess at best.
Well, that's why it's better to call it a liability, not an asset. You may not be able to predict your calculations, but you can definitely calculate whatever happened in the previous tax year and see if your primary residence is an asset (puts money in your pocket or pulls out of your pocket).
I don't understand why people include selling price in the consideration of the investment, that seems to me the opposite of investing, when you sell. In a stock market you make money while you invest, once you have sold (realized) your investment, it's no longer an investment. So, if you are in an up market and the prices are x3 times whatever you originally paid, great, but if you sell right now, to reinvest that money in another house, you would need to pay x3 more. So, the true investment, is when you make profits and reinvest them, you don't sell your investment. So, you shouldn't consider appreciation in your investment calculations. But you should consider maintenance, like a new roof every 10 years, or water heater every 10-15 years to keep your property at the same resell value.
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I've read on here not to think of your home as an investment. I sort of understand this.
But here on the West Coast doesn't everyone, at least in the back of their mind consider their home in this way?
Hard not to when your home has appreciated triple in 5 years. At what point does it make sense to cash out even if yo enjoy the home?
What is so wrong with a home as an investment, anyway? It just seems like good foresight to me, and a little luck of course.
Housing is an expense, and like all expenses it is wise to minimize it. Buying a home can minimize your housing expenses. For one, a portion of your mortgage payment builds equity, which you don't get if you are renting. And your mortgage remains the same, while presumably rents will continue to increase. Additionally, it is reasonable to assume your house's value will increase at something close to the rate of inflation which isn't great. However, you only put 20% down (or whatever) but you get the keep the entire increase, so there is a bit of leverage there. For those reasons, a lot of people wind up with a lot of their net worth in their home. That's why you hear things like "stop throwing your money away on rent!" because for many people it turned out to be an investment, even if it wasn't a great one.
The key is you really have to drill down and look at the numbers. Sometimes it makes sense, not always though.
Your mortgage remains the same ONLY if you buy in a very low cost area. The true mortgage payment that includes escrow (taxes and insurance) will go up every year, as property taxes rise and so the insurance. Since I bought my primary residence in high end neighborhood, I had switched my insurance provider 3 times and have a $7.5k deductible on my roof, to keep my mortgage close to same (still higher than the first year), plus I despute my property taxes on an annual basis now, and they still creep up.
My rentals (in low income neighborhoods) barely had any increase in insurance and taxes (something like $20/year/property). I didn't even adjust my rent, their one time late fee covers my taxes and insurance increase.
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Housing is an expense, and like all expenses it is wise to minimize it. Buying a home can minimize your housing expenses. For one, a portion of your mortgage payment builds equity, which you don't get if you are renting. And your mortgage remains the same, while presumably rents will continue to increase. Additionally, it is reasonable to assume your house's value will increase at something close to the rate of inflation which isn't great. However, you only put 20% down (or whatever) but you get the keep the entire increase, so there is a bit of leverage there. For those reasons, a lot of people wind up with a lot of their net worth in their home. That's why you hear things like "stop throwing your money away on rent!" because for many people it turned out to be an investment, even if it wasn't a great one.
The key is you really have to drill down and look at the numbers. Sometimes it makes sense, not always though.
Your mortgage remains the same ONLY if you buy in a very low cost area. The true mortgage payment that includes escrow (taxes and insurance) will go up every year, as property taxes rise and so the insurance. Since I bought my primary residence in high end neighborhood, I had switched my insurance provider 3 times and have a $7.5k deductible on my roof, to keep my mortgage close to same (still higher than the first year), plus I despute my property taxes on an annual basis now, and they still creep up.
My rentals (in low income neighborhoods) barely had any increase in insurance and taxes (something like $20/year/property). I didn't even adjust my rent, their one time late fee covers my taxes and insurance increase.
Nope. Taxes and insurance are an expense, but they are not the mortgage. Taxes and insurance will rise with inflation, as will other expenses like utilities and maintenance, but the mortgage is fixed (assumed a fixed rate, of course).
If you look at housing as an expense, then it is important to consider the effects of inflation. Assuming 3.0% inflation (a bit less than the historical average), in 15 years your mortgage will be reduced by about 40%. That's a non-trivial amount. That doesn't suggest your housing costs will be reduced by 40%, but for most people the mortgage is the single biggest housing expense they have. And therefore it is appropriate to include inflation in the rent vs. buy calculation.
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Housing is an expense, and like all expenses it is wise to minimize it. Buying a home can minimize your housing expenses. For one, a portion of your mortgage payment builds equity, which you don't get if you are renting. And your mortgage remains the same, while presumably rents will continue to increase. Additionally, it is reasonable to assume your house's value will increase at something close to the rate of inflation which isn't great. However, you only put 20% down (or whatever) but you get the keep the entire increase, so there is a bit of leverage there. For those reasons, a lot of people wind up with a lot of their net worth in their home. That's why you hear things like "stop throwing your money away on rent!" because for many people it turned out to be an investment, even if it wasn't a great one.
The key is you really have to drill down and look at the numbers. Sometimes it makes sense, not always though.
Your mortgage remains the same ONLY if you buy in a very low cost area. The true mortgage payment that includes escrow (taxes and insurance) will go up every year, as property taxes rise and so the insurance. Since I bought my primary residence in high end neighborhood, I had switched my insurance provider 3 times and have a $7.5k deductible on my roof, to keep my mortgage close to same (still higher than the first year), plus I dispute my property taxes on an annual basis now, and they still creep up.
My rentals (in low income neighborhoods) barely had any increase in insurance and taxes (something like $20/year/property). I didn't even adjust my rent, their one time late fee covers my taxes and insurance increase.
Nope. Taxes and insurance are an expense, but they are not the mortgage. Taxes and insurance will rise with inflation, as will other expenses like utilities and maintenance, but the mortgage is fixed (assumed a fixed rate, of course).
I don't get your point. It's just semantics, usually monthly mortgage payments include escrow, if don't want to call it mortgage payments, it's up to you, call it an escrow. The point was, your monthly payments as a home owner (I will omit the word "mortgage") increases. So, if you compare a tenant who's rent increases every year and so the monthly payments, homeowners monthly payments for their primary residence also increase (tenants don't pay property taxes and home insurance, it's included in their rent payment). That was my point.
Plus, I would like to find an area where taxes and insurance rise as much as utilities. In my city that only happens in very low income areas where my rentals are. Otherwise taxes and insurance rise well higher than an inflation rate (go with 5-10% annually, sometimes more). Insurance also rises if your area was hit with a hail storm or other hazard, even if you didn't file a claim. My insurance also increased its rates from $1.2k to $2.4k after I got divorced (apparently, I became a high risk for them to insure); plus, you would be surprised to learn that if you open more than 2 CCs after having old CC for >5 years, they suddenly become panicky and increase your home insurance.
If you look at housing as an expense, then it is important to consider the effects of inflation. Assuming 3.0% inflation (a bit less than the historical average), in 15 years your mortgage will be reduced by about 40%. That's a non-trivial amount. That doesn't suggest your housing costs will be reduced by 40%, but for most people the mortgage is the single biggest housing expense they have. And therefore it is appropriate to include inflation in the rent vs. buy calculation.
Still missing your point. Are you talking about a 30 year mortgage in this case? Because people who have a 15 year mortgage (like me) shouldn't have any mortgage payments in 15 years. And after 15 or 30 years my roof would need to be replaced, as well as water heater, furnace and AC, not to mention other items becoming outdated, like sprinkler system, driveway, windows, gutters, downspouts, garage door motor, back porch, bathrooms, kitchens. Should I go on?
And then you try to sell your "investment" after 30 years of not being updated and maintained, and you might get your purchase price, if you are lucky, and if no major damage was done with leaking roof and broken gutters.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent.
Another way to put it is that the costs of buying are insurance against rising rents. Of course, taxes and insurance will likely go up, but probably not at the pace of local wages.
Anyone who is convinced that a particular house will appreciate should spend a little time in cities like Cleveland, Detroit, Syracuse, or Albany. Not all that many years ago, these were the places to be. Now 200k will buy you a mansion.
Not only does the housing market go up and down, tastes for different locations have changed in the past, and there's no reason to think they won't change again in the future. Do you really want to put a big "investment" bet on one particular chunk of ground out of all the places in the world? Do you also think blackjack has good odds?
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Still missing your point. Are you talking about a 30 year mortgage in this case? Because people who have a 15 year mortgage (like me) shouldn't have any mortgage payments in 15 years. And after 15 or 30 years my roof would need to be replaced, as well as water heater, furnace and AC, not to mention other items becoming outdated, like sprinkler system, driveway, windows, gutters, downspouts, garage door motor, back porch, bathrooms, kitchens. Should I go on?
No need. I just call those things "maintence." Saves a lot of time.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent.
Another way to put it is that the costs of buying are insurance against rising rents. Of course, taxes and insurance will likely go up, but probably not at the pace of local wages.
Anyone who is convinced that a particular house will appreciate should spend a little time in cities like Cleveland, Detroit, Syracuse, or Albany. Not all that many years ago, these were the places to be. Now 200k will buy you a mansion.
Not only does the housing market go up and down, tastes for different locations have changed in the past, and there's no reason to think they won't change again in the future. Do you really want to put a big "investment" bet on one particular chunk of ground out of all the places in the world? Do you also think blackjack has good odds?
Not sure if you’ve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average. It’s just as crazy priced as anywhere else. (Sure there is the really bad, empty areas, but even cleveland proper in many areas is getting out of hand)
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
As for the “it’s an investment because imputes rent” - I find that to be a bad analogy. That like saying your washing machine is an investment because it reduces the money you would have spent at the laundromat. That’s a terrible idea. Your house depreciates and does not return you any money, pay dividends, or earn income. Thinking that it will go up in value any more than inflation, or better described as wage inflation in your local market, is speculation.
If you purchase the house and do a slow flip, rent out rooms, eventually plan on making it a rental, etc, I would classify it as an investment. If you plan on living there, it’s an asset that depreciates.
For most people with a mortgage, it’s also a forced savings account that earns no interest. You’re forced into making principal payments monthly, so in the end, you own a large asset that can be drawn upon. Not an investment, just a savings vehicle.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent.
Another way to put it is that the costs of buying are insurance against rising rents. Of course, taxes and insurance will likely go up, but probably not at the pace of local wages.
Anyone who is convinced that a particular house will appreciate should spend a little time in cities like Cleveland, Detroit, Syracuse, or Albany. Not all that many years ago, these were the places to be. Now 200k will buy you a mansion.
Not only does the housing market go up and down, tastes for different locations have changed in the past, and there's no reason to think they won't change again in the future. Do you really want to put a big "investment" bet on one particular chunk of ground out of all the places in the world? Do you also think blackjack has good odds?
Not sure if you’ve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average. It’s just as crazy priced as anywhere else. (Sure there is the really bad, empty areas, but even cleveland proper in many areas is getting out of hand)
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A buddy in Shaker Heights recently sold his place that I'd call a mansion for less than 200k. In any other major up and coming metro, it was an 800k+ house. Cleveland might be getting better, and it might be getting better rapidly, but it's not in the same realm as other major metros.
And, perhaps more to the point, it's not fulfilling the trajectory people thought it was on pre-war. The point I was making earlier was that housing markets change, and Cleveland is a good example of a market that used to be hot/exclusive and isn't anymore.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
As for the “it’s an investment because imputes rent” - I find that to be a bad analogy. That like saying your washing machine is an investment because it reduces the money you would have spent at the laundromat. That’s a terrible idea. Your house depreciates and does not return you any money, pay dividends, or earn income. Thinking that it will go up in value any more than inflation, or better described as wage inflation in your local market, is speculation.
If you purchase the house and do a slow flip, rent out rooms, eventually plan on making it a rental, etc, I would classify it as an investment. If you plan on living there, it’s an asset that depreciates.
For most people with a mortgage, it’s also a forced savings account that earns no interest. You’re forced into making principal payments monthly, so in the end, you own a large asset that can be drawn upon. Not an investment, just a savings vehicle.
Papa Bear hit the nail on the head and explained this better than anyone else in this thread. Also, if you're still curious why not read what Robert Shiller has to say about homes being investments, after all he is a nobel prize winner in economics and has spent his career studying this very subject, so he's got some street cred:
https://www.google.com/search?rlz=1CAHFRG_enUS843US843&ei=o52-XKytLMW4sQXfmr_QCw&q=robert+shiller+is+housing+an+investment&oq=robert+shiller+is+housing+an+investment&gs_l=psy-ab.3...846781.855580..855785...2.0..0.298.1428.13j1j1......0....1..gws-wiz.......0i7i30j0i30j0i13i30j33i10i299j33i299j33i10.Hx0XBdKoLnU
Alternatively, you could take the advice of your real estate agent who told you about how his brother in law's step sisters mom bought a cottage in Palo Alto when it was all orange groves in the 70s for $100k (a lot of money back then) and now its worth a cool $2M.
Also, im going to use Papa Bears imputed rent analogy - laundry machines to convince my wife that my stable of bicycles are really investments because they save money I would have otherwise used to drive, go to a gym, etc.
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Papa Bear hit the nail on the head and explained this better than anyone else in this thread. Also, if you're still curious why not read what Robert Shiller has to say about homes being investments, after all he is a nobel prize winner in economics and has spent his career studying this very subject, so he's got some street cred:
https://www.google.com/search?rlz=1CAHFRG_enUS843US843&ei=o52-XKytLMW4sQXfmr_QCw&q=robert+shiller+is+housing+an+investment&oq=robert+shiller+is+housing+an+investment&gs_l=psy-ab.3...846781.855580..855785...2.0..0.298.1428.13j1j1......0....1..gws-wiz.......0i7i30j0i30j0i13i30j33i10i299j33i299j33i10.Hx0XBdKoLnU
Alternatively, you could take the advice of your real estate agent who told you about how his brother in law's step sisters mom bought a cottage in Palo Alto when it was all orange groves in the 70s for $100k (a lot of money back then) and now its worth a cool $2M.
Also, im going to use Papa Bears imputed rent analogy - laundry machines to convince my wife that my stable of bicycles are really investments because they save money I would have otherwise used to drive, go to a gym, etc.
Pet Peeve: People who post a Google search link instead of an article that supports their argument. Creating a search string that generates Google hits does not equal an argument. That's intellectual laziness.
That said, imputed rent is something that must be considered. If you weren't buying, you would be renting somewhere. That cost is non-trivial and must be included.
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Papa Bear hit the nail on the head and explained this better than anyone else in this thread. Also, if you're still curious why not read what Robert Shiller has to say about homes being investments, after all he is a nobel prize winner in economics and has spent his career studying this very subject, so he's got some street cred:
https://www.google.com/search?rlz=1CAHFRG_enUS843US843&ei=o52-XKytLMW4sQXfmr_QCw&q=robert+shiller+is+housing+an+investment&oq=robert+shiller+is+housing+an+investment&gs_l=psy-ab.3...846781.855580..855785...2.0..0.298.1428.13j1j1......0....1..gws-wiz.......0i7i30j0i30j0i13i30j33i10i299j33i299j33i10.Hx0XBdKoLnU
Alternatively, you could take the advice of your real estate agent who told you about how his brother in law's step sisters mom bought a cottage in Palo Alto when it was all orange groves in the 70s for $100k (a lot of money back then) and now its worth a cool $2M.
Also, im going to use Papa Bears imputed rent analogy - laundry machines to convince my wife that my stable of bicycles are really investments because they save money I would have otherwise used to drive, go to a gym, etc.
Pet Peeve: People who post a Google search link instead of an article that supports their argument. Creating a search string that generates Google hits does not equal an argument. That's intellectual laziness.
That said, imputed rent is something that must be considered. If you weren't buying, you would be renting somewhere. That cost is non-trivial and must be included.
Imputed rent is cost savings, with real applications that I agree should be taken in to consideration if you are going to purchase an asset. It is not an investment. See: washing machine, bicycle, cooking utensils, a vacuum cleaner, lawn mower, a large outbuilding. I doubt anyone on here would say that building a 4 car garage just to save on your storage pod and store your boat would be an investment. Does it have a real world value in cost savings? Yes, now you don’t pay storage or garage rental fees. But you didn’t “invest” in a garage. You bought an asset that reduces your costs. And that asset loses value in real terms, or depreciates, over time, unless you maintain that asset to keep it at full working value.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
As for the “it’s an investment because imputes rent” - I find that to be a bad analogy. That like saying your washing machine is an investment because it reduces the money you would have spent at the laundromat. That’s a terrible idea. Your house depreciates and does not return you any money, pay dividends, or earn income. Thinking that it will go up in value any more than inflation, or better described as wage inflation in your local market, is speculation.
If you purchase the house and do a slow flip, rent out rooms, eventually plan on making it a rental, etc, I would classify it as an investment. If you plan on living there, it’s an asset that depreciates.
For most people with a mortgage, it’s also a forced savings account that earns no interest. You’re forced into making principal payments monthly, so in the end, you own a large asset that can be drawn upon. Not an investment, just a savings vehicle.
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Or not. There were a heck of a lot of underwater mortgages and foreclosures for years during the great recession. Even those with jobs were unable to sell or take a loan against the house which may be 50% lower in value then what you owed on it even if you'd been making payments for years. If your financial investments tank by half it sucks but that's the end of it. If your house value tanks by half and below what you owe on it you still have to pay off that higher debt and lose the money you already paid into it. Plus pay taxes, insurance, maintenance, utilities, etc. Or go bankrupt and for close - both which have lasting financial implications.
Just to be pedantic, I did clarify that “in the end” you would have an asset to draw upon. If you have paid off your mortgage, it doesn’t matter if your house is 50% of your purchase price, you would still have equity, just less than you put in. Still a forced savings vehicle, just a shitty one.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent.
Another way to put it is that the costs of buying are insurance against rising rents. Of course, taxes and insurance will likely go up, but probably not at the pace of local wages.
Anyone who is convinced that a particular house will appreciate should spend a little time in cities like Cleveland, Detroit, Syracuse, or Albany. Not all that many years ago, these were the places to be. Now 200k will buy you a mansion.
Not only does the housing market go up and down, tastes for different locations have changed in the past, and there's no reason to think they won't change again in the future. Do you really want to put a big "investment" bet on one particular chunk of ground out of all the places in the world? Do you also think blackjack has good odds?
Not sure if you’ve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average. It’s just as crazy priced as anywhere else. (Sure there is the really bad, empty areas, but even cleveland proper in many areas is getting out of hand)
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A buddy in Shaker Heights recently sold his place that I'd call a mansion for less than 200k. In any other major up and coming metro, it was an 800k+ house. Cleveland might be getting better, and it might be getting better rapidly, but it's not in the same realm as other major metros.
And, perhaps more to the point, it's not fulfilling the trajectory people thought it was on pre-war. The point I was making earlier was that housing markets change, and Cleveland is a good example of a market that used to be hot/exclusive and isn't anymore.
Nice, updated, and maintained homes in some inner ring suburbs are demanding close to $200/sf.
I buy them at 70-80/sf and remodel them. Now worth 200/sf.
So yes, you can still buy a shitty home for reasonable prices, and then turn it over and make a boatload.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent.
Another way to put it is that the costs of buying are insurance against rising rents. Of course, taxes and insurance will likely go up, but probably not at the pace of local wages.
Anyone who is convinced that a particular house will appreciate should spend a little time in cities like Cleveland, Detroit, Syracuse, or Albany. Not all that many years ago, these were the places to be. Now 200k will buy you a mansion.
Not only does the housing market go up and down, tastes for different locations have changed in the past, and there's no reason to think they won't change again in the future. Do you really want to put a big "investment" bet on one particular chunk of ground out of all the places in the world? Do you also think blackjack has good odds?
Not sure if you’ve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average. It’s just as crazy priced as anywhere else. (Sure there is the really bad, empty areas, but even cleveland proper in many areas is getting out of hand)
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A buddy in Shaker Heights recently sold his place that I'd call a mansion for less than 200k. In any other major up and coming metro, it was an 800k+ house. Cleveland might be getting better, and it might be getting better rapidly, but it's not in the same realm as other major metros.
And, perhaps more to the point, it's not fulfilling the trajectory people thought it was on pre-war. The point I was making earlier was that housing markets change, and Cleveland is a good example of a market that used to be hot/exclusive and isn't anymore.
Though you are spot on with the pre war elite not holding up.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
My house is an asset that depreciates over time? That must explain why it has increased in value at a greater pace than my equities over the past ten years . . . depreciation.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
My house is an asset that depreciates over time? That must explain why it has increased in value at a greater pace than my equities over the past ten years . . . depreciation.
Poor argument. Depreciation is a non cash expense, and you can have the market value of the asset greater than your cost basis. That doesn’t change the fact that, in reality, it depreciates.
Your house is made up of components, that with use and time, degrade, fall apart, need maintenance, and replacing. The us federal government recognizes and estimates this, as you depreciate residential rental properties over 27.5 years.
If you did absolutely no maintenance or upkeep, the house would have little to no value after 27 years. Gutters would have overflowed causing foundation issues, roof would be leaking, paint would be cracking off the walls, your toilets would have never been plunged and be overflowing, appliances never maintained, plants would be growing through everything. And on and on.
Your house keeps value because of the ongoing labor and capital that are needed to keep it in good working order.
The value of your house and land, if maintained, will normally track wage inflation for your market area. Exceptions occur, but are speculative. Government can enact zoning and regulation that restricts housing supply, natural disasters can alter the landscape, etc.
If you made a lot of money on your home, congratulations! You have properly maintained your property, live in an area of prosperity, and maybe had a little bit of luck. That doesn’t change the fact that your house slowly wants to return to dust and ash over time.
You do not depreciate the land for accounting purposes.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
My house is an asset that depreciates over time? That must explain why it has increased in value at a greater pace than my equities over the past ten years . . . depreciation.
Poor argument. Depreciation is a non cash expense, and you can have the market value of the asset greater than your cost basis. That doesn’t change the fact that, in reality, it depreciates.
Your house is made up of components, that with use and time, degrade, fall apart, need maintenance, and replacing. The us federal government recognizes and estimates this, as you depreciate residential rental properties over 27.5 years.
If you did absolutely no maintenance or upkeep, the house would have little to no value after 27 years. Gutters would have overflowed causing foundation issues, roof would be leaking, paint would be cracking off the walls, your toilets would have never been plunged and be overflowing, appliances never maintained, plants would be growing through everything. And on and on.
Your house keeps value because of the ongoing labor and capital that are needed to keep it in good working order.
The value of your house and land, if maintained, will normally track wage inflation for your market area. Exceptions occur, but are speculative. Government can enact zoning and regulation that restricts housing supply, natural disasters can alter the landscape, etc.
If you made a lot of money on your home, congratulations! You have properly maintained your property, live in an area of prosperity, and maybe had a little bit of luck. That doesn’t change the fact that your house slowly wants to return to dust and ash over time.
You do not depreciate the land for accounting purposes.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
My house is an asset that depreciates over time? That must explain why it has increased in value at a greater pace than my equities over the past ten years . . . depreciation.
Poor argument. Depreciation is a non cash expense, and you can have the market value of the asset greater than your cost basis. That doesn’t change the fact that, in reality, it depreciates.
Your house is made up of components, that with use and time, degrade, fall apart, need maintenance, and replacing. The us federal government recognizes and estimates this, as you depreciate residential rental properties over 27.5 years.
If you did absolutely no maintenance or upkeep, the house would have little to no value after 27 years. Gutters would have overflowed causing foundation issues, roof would be leaking, paint would be cracking off the walls, your toilets would have never been plunged and be overflowing, appliances never maintained, plants would be growing through everything. And on and on.
Your house keeps value because of the ongoing labor and capital that are needed to keep it in good working order.
The value of your house and land, if maintained, will normally track wage inflation for your market area. Exceptions occur, but are speculative. Government can enact zoning and regulation that restricts housing supply, natural disasters can alter the landscape, etc.
If you made a lot of money on your home, congratulations! You have properly maintained your property, live in an area of prosperity, and maybe had a little bit of luck. That doesn’t change the fact that your house slowly wants to return to dust and ash over time.
You do not depreciate the land for accounting purposes.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Look, I never said real estate can’t be an investment or that you can’t make boatloads of money off of it. I’m a real estate investor and landlord! I’m a champion for real estate!
If you buy a home and your intent is to live in it, take advantage of its consumption value, earn no return, make no improvements, etc, it’s not an investment.
If you plan on improving and selling, renting bedrooms, moving and making it a rental, Airbnb the place while you’re on your month long vacations out of the country, then your intent was to make this an income producing asset, or an investment.
For posterity’s sake: my personal home was purchased with the intent on making improvements, living there for 3-5 years, and sell the property - a slow flip for you following along. I knew going in that the area was improving with planned new development and I found a house that was shitty and needed remodeled. Cool, I put in 40k and a ton of labor, and I can sell it for 100k more than my cost basis (purchase price plus improvements). That was a great investment...
But now that I live here, get to use the new area development, hang out in the great neighborhood, and live in a house that I made awesome, I’m not sure I want to leave. Welp, there goes my “investment.” I’m just going to consume the crap out of my house now.
Still an asset? Yes
Market value greater than cost basis? Yes
Would I make a ton of money if I sell? Yes
Do I plan on selling now? No
Can I access equity without interest? No
Is it an investment? No
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
The land generally isn't considered an investment either since:
-the land is USUALLY a small percentage of the value of the property, USUALLY around 20% of the value of the property. On page one some posters said their areas were unique in that land values were more than the buildings that occupied them. I believe them but this is very unusual and is not typical.
-the land incurs property tax bills
-the land also requires upkeep, management, and maintenance to maintain its value.
I posted the google search link to Shillers thought on homes as investments since there are a bunch of short articles, all a little different, and the best ones behind the NY Times paywall (but some of you probably know how to get around that) but nevertheless I accept that I am intellectually lazy.
My strategy is to keep my primary home expenses (I own a duplex) as low as possible so that I have as much money as possible for tax advantaged traditional investments thru 401k, IRA, HSA and probably even private real estate investments (long term rentals) someday. I can only take full advantage (max out) my tax advantaged retirement accounts because I am able to keep my housing costs low. If I made the mistake of thinking of my primary residence as in investment I would be able to justify living in a more expensive home (since more money invested = more returns) and have less money for traditional investments, I would perhaps even need to forgo freebies like matching 401k funds from my employer.
It seems like some of you cant get your head around the fact that the building is a consumable item since some of you have anecdotal evidence like "I have owned the home for 3 years and have spent little to maintain it and it is appreciating rapidly". I suggest that this could be a sign of inexperience and naivete. You bought a building that was well maintained by previous owners (good move) during a bull market. Give it some time or trust what you read about the subject from experts (not RE agents trying to get you to buy properties or peddlers of "RE investment systems") that have been around for awhile.
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I think of my home as an investment but not for me, for my child. Would I consider a 401K I could only touch on death an asset, hell yeah!, Again, for my kids! Like most people on here, we'll save way more money than we really need because we like our jobs and just come to the forum to look at other disciplined advice. Thus, when we die we'll have a ton of money to pass on to our children, including a house for them to live in if they so choose, or to sell and feel more secure or start a business, or go on a world tour or whatever else. As far as the house goes for generating assets to borrow against for other investments through appreciation, of course that's an asset. If lenders recognize that value as an asset to lend against, it's an asset.
I think what most people are saying is that while a house is an asset, try to live like it ISN'T an asset.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it. Even then, it may not be a good investment compared to other assets you can purchase.
My house is an asset that depreciates over time? That must explain why it has increased in value at a greater pace than my equities over the past ten years . . . depreciation.
Poor argument. Depreciation is a non cash expense, and you can have the market value of the asset greater than your cost basis. That doesn’t change the fact that, in reality, it depreciates.
Your house is made up of components, that with use and time, degrade, fall apart, need maintenance, and replacing. The us federal government recognizes and estimates this, as you depreciate residential rental properties over 27.5 years.
If you did absolutely no maintenance or upkeep, the house would have little to no value after 27 years. Gutters would have overflowed causing foundation issues, roof would be leaking, paint would be cracking off the walls, your toilets would have never been plunged and be overflowing, appliances never maintained, plants would be growing through everything. And on and on.
Your house keeps value because of the ongoing labor and capital that are needed to keep it in good working order.
The value of your house and land, if maintained, will normally track wage inflation for your market area. Exceptions occur, but are speculative. Government can enact zoning and regulation that restricts housing supply, natural disasters can alter the landscape, etc.
If you made a lot of money on your home, congratulations! You have properly maintained your property, live in an area of prosperity, and maybe had a little bit of luck. That doesn’t change the fact that your house slowly wants to return to dust and ash over time.
You do not depreciate the land for accounting purposes.
Sent from my iPhone using Tapatalk
OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Look, I never said real estate can’t be an investment or that you can’t make boatloads of money off of it. I’m a real estate investor and landlord! I’m a champion for real estate!
If you buy a home and your intent is to live in it, take advantage of its consumption value, earn no return, make no improvements, etc, it’s not an investment.
If you plan on improving and selling, renting bedrooms, moving and making it a rental, Airbnb the place while you’re on your month long vacations out of the country, then your intent was to make this an income producing asset, or an investment.
For posterity’s sake: my personal home was purchased with the intent on making improvements, living there for 3-5 years, and sell the property - a slow flip for you following along. I knew going in that the area was improving with planned new development and I found a house that was shitty and needed remodeled. Cool, I put in 40k and a ton of labor, and I can sell it for 100k more than my cost basis (purchase price plus improvements). That was a great investment...
But now that I live here, get to use the new area development, hang out in the great neighborhood, and live in a house that I made awesome, I’m not sure I want to leave. Welp, there goes my “investment.” I’m just going to consume the crap out of my house now.
Still an asset? Yes
Market value greater than cost basis? Yes
Would I make a ton of money if I sell? Yes
Do I plan on selling now? No
Can I access equity without interest? No
Is it an investment? No
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How about those uber rich guys who own businesses/companies/amazon? They have control of the company worth millions/billions but to sell it would be to lose control. So instead of selling shares of amazon or whatever they just choose to borrow against the stock.
So in this case the stock is obviously an investment.
Kinda feels like this would apply here.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
The land generally isn't considered an investment either since:
-the land is USUALLY a small percentage of the value of the property, USUALLY around 20% of the value of the property. On page one some posters said their areas were unique in that land values were more than the buildings that occupied them. I believe them but this is very unusual and is not typical.
-the land incurs property tax bills
-the land also requires upkeep, management, and maintenance to maintain its value.
I posted the google search link to Shillers thought on homes as investments since there are a bunch of short articles, all a little different, and the best ones behind the NY Times paywall (but some of you probably know how to get around that) but nevertheless I accept that I am intellectually lazy.
My strategy is to keep my primary home expenses (I own a duplex) as low as possible so that I have as much money as possible for tax advantaged traditional investments thru 401k, IRA, HSA and probably even private real estate investments (long term rentals) someday. I can only take full advantage (max out) my tax advantaged retirement accounts because I am able to keep my housing costs low. If I made the mistake of thinking of my primary residence as in investment I would be able to justify living in a more expensive home (since more money invested = more returns) and have less money for traditional investments, I would perhaps even need to forgo freebies like matching 401k funds from my employer.
It seems like some of you cant get your head around the fact that the building is a consumable item since some of you have anecdotal evidence like "I have owned the home for 3 years and have spent little to maintain it and it is appreciating rapidly". I suggest that this could be a sign of inexperience and naivete. You bought a building that was well maintained by previous owners (good move) during a bull market. Give it some time or trust what you read about the subject from experts (not RE agents trying to get you to buy properties or peddlers of "RE investment systems") that have been around for awhile.
It's more that I have trouble wrapping my head around my home (and land) appreciating in value more than my equities over the past ten years . . . but calling that depreciation. I may well be naive and inexperienced though. How many decades of home ownership are necessary to become experienced?
In my inexperienced naievity, maintenance on our home doesn't exactly appear to be the onerous task it's being made out . . . Gardening and landscaping are free, plunging your own toilet is free, cleaning out the gutters is free, shoveling snow from the driveway is free. We've been able to replace appliances for virtually nothing by buying used so far. I do spend several dollars each year in energy costs mowing the lawn. We have replaced our furnace, painted some things, and are likely to replace our water heater in the near future. We do pay taxes (of under half a percentage point of the price of the home) each year, and a couple hundred dollars of home insurance . . . but when the costs are averaged out they're pretty minimal. The money we make from the solar panels that on our roof that we use to sell electricity back into the grid cover the costs of any maintenance. Certainly this is are far less than the monthly price of renting anything comparable.
Do most people expect to live in their house until death? I like where I live, and have no immediate plans to move. If prices keep going the way that they have for the past 20 odd years, we will likely move to a cheaper location at some point in the future though . . . and will happily pocket the proceeds generated from our non-investment. As a naive and inexperienced person, I don't really view any primary residence as being permanent. Your life situation will change, so it's important to keep in mind what price your home is for when you are contemplating a sale.
Our (naive) strategy was to buy a house that we liked and could raise a family in that was available in an area we liked where we expected to live for 10+ years. We do regular (but minimal) maintenance on the home ourselves. In our inexperience we've never needed to forgo tax sheltered investments or to choose between paying off the mortgage and matching employer investment funds because that would be stupid - and an indication that we couldn't afford the home. Yes, it would likely have been less expensive to rent a camper van down by the river, or live in a one bedroom illegal basement apartment for a decade . . .but potential accumulation of fractionally more money isn't really my goal in life. Comfort and happiness are. The fact that our equities have under-performed the (apparently horribly depreciating) price of our home over the time of our ownership is a nice side bonus.
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what's your point, that the home is an asset (we agree). that home maintenance is easy (we agree). you really think the house is going to last forever tho dont you? unless its made from unicorn dust, its going to depreciate into a pile of rubble unless you continue to do what your are doing (throwing money and work at it).
also, see you are in canada, my property taxes are way higher than a half percent, assume our insurance is higher since a "couple of hundred" is less than anyone pays for HO ins here and most workers have around $30k a year in tax advantaged retirement savings available to them here, very few americans take full advantage of these tax savings.
just because your house appreciated more in value than your equities in the past 10 years doesn't make your house as an investment. maybe your house appreciated due to slow appreciation and high leverage, maybe you are good a picking houses, bad at picking stocks. if your investments had done better than your house would you be saying that the house is not an investment?
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Still missing your point. Are you talking about a 30 year mortgage in this case? Because people who have a 15 year mortgage (like me) shouldn't have any mortgage payments in 15 years. And after 15 or 30 years my roof would need to be replaced, as well as water heater, furnace and AC, not to mention other items becoming outdated, like sprinkler system, driveway, windows, gutters, downspouts, garage door motor, back porch, bathrooms, kitchens. Should I go on?
No need. I just call those things "maintence." Saves a lot of time.
You might call it all maintenance, but many of these things are upgrades. In 30 years, I assume all new srinkler systems will have moisture detectors, similar to GFCI becoming a standart in any kitchen and bathroom, or dryer becoming a nessesaty in every house. I buy 100 year old houses (delapidated houses). Besides not being maintained, these houses had not been built to have a dryer, or a garage door opener, or a central AC - something that has become a part of our lives and we cannot even imagine living in a house that doesn't have a dryer or a central AC. In 30 years, even if homeowners maintain their houses (clean gutters, fix a roof leak, patch holes, touch up paint), the houses are going to become outdated. And in order to sell for the top price, the houses need to be updated, which isn't cheap. Rewiring the whole house, or replumbing it - very not cheap.
As long as the homeowners understand that maintanence means updating to current standards in order to keep the value, then we are talking about the same maintanence thing.
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what's your point, that the home is an asset (we agree). that home maintenance is easy (we agree).
We disagree with both. Well, let's leave home maintenance, depends what you call "home maintenance."
But a home aka a primary residence is a liability, not an asset/investment.
Home (April):
Money out of pocket:
-mortgage payment (includes insurance and taxes)
- stupid sprinkler head and it's elbow, clamps and a tool to use on other sprinkle heads ($18)
- fertilizer
- utilities
- glad I bought an air compressor 2 years ago, now I can service my sprinkler system myself ($150 savings for April)
Money into pocket:
- zero. I don't qualify for tax breaks on my primary residence.
Other thoughts: appreciated twice the original price, but who cares, I am not going to sell now, I live here, and even if I do, I'd need to buy another place to live in, that is also appriciated, so I gain nothing, but a headache and need to pay realtors fees.
Rental property, owned free and clear(April):
Money out of pocket:
- insurance (deducted from my rental income).
- and.....zero. Shoot, bad example, let's do February ($110 for fernace guy fixing a part on the warranty), this money would be also deducted from my rental income. Can I do this on my primary residence, wait, I have no income on my primary residence. But can I still deduct that stupid sprinkler head? Nope.
Money into pocket:
-rent, still making 16% on my investment, even after $110 expence.
Other thoughts: glad everything is appreciating now, if I needed to sell now, I'm going to make pretty good money, but why do I want to pay taxes on the capital gain now. No need, I can sell later. But can I sell without the need to buy another one immediately, if I don't want to? Sure, it's your investment, you can sell it at any time and don't need to buy anything, you have a place to live in.
Which one of those is an investment and which one is a liability?
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A sprinkler system, fertilizer, and an air compressor are all totally unnecessary when owning a home. I certainly don't need to use any of them . . . but I've landscaped our yard with plants that are adapted to the natural conditions of our yard. If you're trying to grow stuff that doesn't belong in your climate and don't want to keep wasting time/money, you should probably stop.
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A sprinkler system, fertilizer, and an air compressor are all totally unnecessary when owning a home. I certainly don't need to use any of them . . . but I've landscaped our yard with plants that are adapted to the natural conditions of our yard. If you're trying to grow stuff that doesn't belong in your climate and don't want to keep wasting time/money, you should probably stop.
Not that its pertinent to this thread but an air compressor is totally necessary if you have an irrigation system, to not have one is to throw money away since you can buy a compressor for the price of one sprinkler blow out. I live in a semi-arid area (front range, CO). We have lots of options for xeric low water plants but it they are really only xeric once they are well established. They need a lot of water and care to become established. Some of the alternatives like buffalo grass dont require watering once established but they certainly aren't going to increase the value of your real estate as they are not generally thought of as aesthetically pleasing or desireable turf grasses. Other options like xeric landscapes with rock and nice xeric flowering plants are very expensive to install.
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what's your point, that the home is an asset (we agree). that home maintenance is easy (we agree).
We disagree with both. Well, let's leave home maintenance, depends what you call "home maintenance."
But a home aka a primary residence is a liability, not an asset/investment.
Home (April):
Money out of pocket:
-mortgage payment (includes insurance and taxes)
- stupid sprinkler head and it's elbow, clamps and a tool to use on other sprinkle heads ($18)
- fertilizer
- utilities
- glad I bought an air compressor 2 years ago, now I can service my sprinkler system myself ($150 savings for April)
Money into pocket:
- zero. I don't qualify for tax breaks on my primary residence.
Other thoughts: appreciated twice the original price, but who cares, I am not going to sell now, I live here, and even if I do, I'd need to buy another place to live in, that is also appriciated, so I gain nothing, but a headache and need to pay realtors fees.
Rental property, owned free and clear(April):
Money out of pocket:
- insurance (deducted from my rental income).
- and.....zero. Shoot, bad example, let's do February ($110 for fernace guy fixing a part on the warranty), this money would be also deducted from my rental income. Can I do this on my primary residence, wait, I have no income on my primary residence. But can I still deduct that stupid sprinkler head? Nope.
Money into pocket:
-rent, still making 16% on my investment, even after $110 expence.
Other thoughts: glad everything is appreciating now, if I needed to sell now, I'm going to make pretty good money, but why do I want to pay taxes on the capital gain now. No need, I can sell later. But can I sell without the need to buy another one immediately, if I don't want to? Sure, it's your investment, you can sell it at any time and don't need to buy anything, you have a place to live in.
Which one of those is an investment and which one is a liability?
I should have clarified by saying that "some home maintenance and necessary improvements/upgrades are easy for ME". I have been working with my hands for a long time and have some work experience in light construction. In fact some of the projects I would consider to be fun. But, I could probably get a job employing those building skills and making some real money on the side with the time I spend "maintaining" my property so there is an opportunity cost here as well.
There is a difference between an asset and investment. I think we all (except for that guy from canada that pays no taxes, insurance, and house is made from magic building materials) that your home (the property that you owna and plan to live in long term) is an asset not an investment. Even as it loses value due to depreciation its still an asset, might be worth less than you paid for it but its still worth something (an asset).
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It's more that I have trouble wrapping my head around my home (and land) appreciating in value more than my equities over the past ten years . . . but calling that depreciation. I may well be naive and inexperienced though. How many decades of home ownership are necessary to become experienced?
In my inexperienced naievity, maintenance on our home doesn't exactly appear to be the onerous task it's being made out . . . Gardening and landscaping are free, plunging your own toilet is free, cleaning out the gutters is free, shoveling snow from the driveway is free. We've been able to replace appliances for virtually nothing by buying used so far. I do spend several dollars each year in energy costs mowing the lawn. We have replaced our furnace, painted some things, and are likely to replace our water heater in the near future. We do pay taxes (of under half a percentage point of the price of the home) each year, and a couple hundred dollars of home insurance . . . but when the costs are averaged out they're pretty minimal. The money we make from the solar panels that on our roof that we use to sell electricity back into the grid cover the costs of any maintenance. Certainly this is are far less than the monthly price of renting anything comparable.
Do most people expect to live in their house until death? I like where I live, and have no immediate plans to move. If prices keep going the way that they have for the past 20 odd years, we will likely move to a cheaper location at some point in the future though . . . and will happily pocket the proceeds generated from our non-investment. As a naive and inexperienced person, I don't really view any primary residence as being permanent. Your life situation will change, so it's important to keep in mind what price your home is for when you are contemplating a sale.
Our (naive) strategy was to buy a house that we liked and could raise a family in that was available in an area we liked where we expected to live for 10+ years. We do regular (but minimal) maintenance on the home ourselves. In our inexperience we've never needed to forgo tax sheltered investments or to choose between paying off the mortgage and matching employer investment funds because that would be stupid - and an indication that we couldn't afford the home. Yes, it would likely have been less expensive to rent a camper van down by the river, or live in a one bedroom illegal basement apartment for a decade . . .but potential accumulation of fractionally more money isn't really my goal in life. Comfort and happiness are. The fact that our equities have under-performed the (apparently horribly depreciating) price of our home over the time of our ownership is a nice side bonus.
How do you get other people to do all that stuff for you for free? Most gardeners, plumbers, snow shovellers etc charge onerous amounts in my experience.
Unless you mean that you yourself are doing it with no cash out flow, and that your time is worth precisely zero. My time is not.
I think papa bear gets it. A home *is* an asset. All else being equal, I would rather have one that not, as the limited financial outlay and maintenance is worth less to me than the discomfort of having to sleep in a snowbank, which means it's a net gain for me, aka an investment with a non-cash return. A car too is an asset. It lets people get around much quicker than walking, and the time savings is worth more than the depreciation/gas/insurance to me.
Rich dad's make-believe definition aside, an asset is anything that provides value. That value need not be monetary. A functioning toilet is an asset. A vegetable garden is an asset since it provides food. A liability on the other hand is something which saps value and you want to be rid of. A mortgage is a liability. A clogged toilet is a liability. Cancer is a liability. If a house was truly a liability, then people should be jumping for joy when it burns down and is eliminated, in the same way they would when their cancer was eliminated.
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How do you get other people to do all that stuff for you for free? Most gardeners, plumbers, snow shovellers etc charge onerous amounts in my experience.
Unless you mean that you yourself are doing it with no cash out flow, and that your time is worth precisely zero. My time is not.
Don't be ridiculous.
The time that you're not employed or working on a revenue generating project is by definition worth precisely zero. If I had to give up a revenue generating activity to perform simple house related tasks I'd agree with you, but so far I've been able to manage both plunging a toilet for a minute every couple months and working a full time job . . . as dreadfully challenging as that is to do.
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Do I get to choose when a downturn hits for my stocks? If so, someone forgot to send me the memo.
No, but you can sell just a portion of your stocks. It's mighty difficult to sell just a portion of a house.
You also presumably have a bond portion of your liquid asset allocation, and can sell that instead when equities are down.
Also you can rent out your house, maybe even air bnb it. If you have a suite in the house you can move into it if times get tough and you need to rent out the main part of the house. Build a new house on the land or renovate/extend the existing house. It seems to me you have options with owning a house.
I'm fortunate to have bought a house in an area experiencing a lot of pressure from population growth. My own house situation is that I could sell it today for around 800k more than I bought it for, I collect enough rent from renting out a suite in the house + 2 roommates to cover all the expenses including the mortgage.
The house in on a 33' x 110' lot and since I bought it the city have allowed for other construction options on the lot... I could 1. build a 700' square foot house behind the main house or 2. knock current house down and build a duplex each with a legal rental suite, so have 4 dwellings on 1 site.
But I'm going to hold off as there's a high likelihood that this area will be rezoned to allow higher density buildings to be built. I received a letter off a realtor saying that if assembled with 4 neighbours would likely get around $750k each house more than if sold on it's own.
For me owning a house has been a great thing. I will say though that I'm a renovator by profession and that had I had to pay someone to do all the work I've done on this 1950's home over the years! It would have been a small fortune... in fact it's been a small fortune even with me doing almost all the work myself as when I'm renovating/fixing mine I'm not off fixing someone elses place and getting paid for it.
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Ok I am inventing a new thing here. A consumable investment.
So you run a landscaping company. You buy a new truck for said company. It requires maintenance, gas, and it depreciates. But buying this truck is still an investment is it not? Is your primary residence not the same type of asset? House require upkeep, cost you money. They do provide you a place to live that you "consume"
I feel this discussion has gotten a little too narrow in its comparison. Comparing a SFH to a stock is kind of an apples to oranges comparison IMO. There are tons of types of investments. From buying a stock to starting a business. Both are investments just require different amounts of effort on the part of the investor.
What do you think? FWIW I have thoroughly enjoyed this thread.
-JB
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Ok I am inventing a new thing here. A consumable investment.
So you run a landscaping company. You buy a new truck for said company. It requires maintenance, gas, and it depreciates. But buying this truck is still an investment is it not? Is your primary residence not the same type of asset? House require upkeep, cost you money. They do provide you a place to live that you "consume"
I feel this discussion has gotten a little too narrow in its comparison. Comparing a SFH to a stock is kind of an apples to oranges comparison IMO. There are tons of types of investments. From buying a stock to starting a business. Both are investments just require different amounts of effort on the part of the investor.
What do you think? FWIW I have thoroughly enjoyed this thread.
-JB
The term you are looking for is depreciating asset.
Consumables are the gas that goes into the machine.
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Ok I am inventing a new thing here. A consumable investment.
So you run a landscaping company. You buy a new truck for said company. It requires maintenance, gas, and it depreciates. But buying this truck is still an investment is it not? Is your primary residence not the same type of asset? House require upkeep, cost you money. They do provide you a place to live that you "consume"
I feel this discussion has gotten a little too narrow in its comparison. Comparing a SFH to a stock is kind of an apples to oranges comparison IMO. There are tons of types of investments. From buying a stock to starting a business. Both are investments just require different amounts of effort on the part of the investor.
What do you think? FWIW I have thoroughly enjoyed this thread.
-JB
The term you are looking for is depreciating asset.
Consumables are the gas that goes into the machine.
Sure, but both the house and the truck in that case are investments, IMO.
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If your personal home is an investment, it’s a darn lousy one in my view. Absent house hacks, what owning your own home allows you to do is limit your rent. And in exchange you pay a heck of a lot for maintenance, repairs, and upgrades while keeping a significant part of your capital tied up.
This.
I love my little house, but it's nothing I consider investment (other than in the sense of "safety" to always have a roof over my head). I don't include it in my net worth, as I am not planning to sell it.
And while the day-to-day cost are marginal (it's all paid off), the maintenance cost do build up, partly ofc as we tend to tweak it to our taste.
So, financially, I do see it more as a liability, but it's comforting nevertheless: with DH being disabled and a few chronically ill pets, I wouldn't want to be at some landlord's discretion.
So it's been worth it, despite the capital sink.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
Non-dividend paying stock are not an investment either then, right? Because you're just holding them in speculation.
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It's more that I have trouble wrapping my head around my home (and land) appreciating in value more than my equities over the past ten years . . . but calling that depreciation. I may well be naive and inexperienced though. How many decades of home ownership are necessary to become experienced?
In my inexperienced naievity, maintenance on our home doesn't exactly appear to be the onerous task it's being made out . . . Gardening and landscaping are free, plunging your own toilet is free, cleaning out the gutters is free, shoveling snow from the driveway is free. We've been able to replace appliances for virtually nothing by buying used so far. I do spend several dollars each year in energy costs mowing the lawn. We have replaced our furnace, painted some things, and are likely to replace our water heater in the near future. We do pay taxes (of under half a percentage point of the price of the home) each year, and a couple hundred dollars of home insurance . . . but when the costs are averaged out they're pretty minimal. The money we make from the solar panels that on our roof that we use to sell electricity back into the grid cover the costs of any maintenance. Certainly this is are far less than the monthly price of renting anything comparable.
Do most people expect to live in their house until death? I like where I live, and have no immediate plans to move. If prices keep going the way that they have for the past 20 odd years, we will likely move to a cheaper location at some point in the future though . . . and will happily pocket the proceeds generated from our non-investment. As a naive and inexperienced person, I don't really view any primary residence as being permanent. Your life situation will change, so it's important to keep in mind what price your home is for when you are contemplating a sale.
Our (naive) strategy was to buy a house that we liked and could raise a family in that was available in an area we liked where we expected to live for 10+ years. We do regular (but minimal) maintenance on the home ourselves. In our inexperience we've never needed to forgo tax sheltered investments or to choose between paying off the mortgage and matching employer investment funds because that would be stupid - and an indication that we couldn't afford the home. Yes, it would likely have been less expensive to rent a camper van down by the river, or live in a one bedroom illegal basement apartment for a decade . . .but potential accumulation of fractionally more money isn't really my goal in life. Comfort and happiness are. The fact that our equities have under-performed the (apparently horribly depreciating) price of our home over the time of our ownership is a nice side bonus.
How do you get other people to do all that stuff for you for free? Most gardeners, plumbers, snow shovellers etc charge onerous amounts in my experience.
Unless you mean that you yourself are doing it with no cash out flow, and that your time is worth precisely zero. My time is not.
I think papa bear gets it. A home *is* an asset. All else being equal, I would rather have one that not, as the limited financial outlay and maintenance is worth less to me than the discomfort of having to sleep in a snowbank, which means it's a net gain for me, aka an investment with a non-cash return. A car too is an asset. It lets people get around much quicker than walking, and the time savings is worth more than the depreciation/gas/insurance to me.
Rich dad's make-believe definition aside, an asset is anything that provides value. That value need not be monetary. A functioning toilet is an asset. A vegetable garden is an asset since it provides food. A liability on the other hand is something which saps value and you want to be rid of. A mortgage is a liability. A clogged toilet is a liability. Cancer is a liability. If a house was truly a liability, then people should be jumping for joy when it burns down and is eliminated, in the same way they would when their cancer was eliminated.
So if your cancer causes you to reconsider your life and make better choices going forward it is an asset?
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It's more that I have trouble wrapping my head around my home (and land) appreciating in value more than my equities over the past ten years . . . but calling that depreciation. I may well be naive and inexperienced though. How many decades of home ownership are necessary to become experienced?
In my inexperienced naievity, maintenance on our home doesn't exactly appear to be the onerous task it's being made out . . . Gardening and landscaping are free, plunging your own toilet is free, cleaning out the gutters is free, shoveling snow from the driveway is free. We've been able to replace appliances for virtually nothing by buying used so far. I do spend several dollars each year in energy costs mowing the lawn. We have replaced our furnace, painted some things, and are likely to replace our water heater in the near future. We do pay taxes (of under half a percentage point of the price of the home) each year, and a couple hundred dollars of home insurance . . . but when the costs are averaged out they're pretty minimal. The money we make from the solar panels that on our roof that we use to sell electricity back into the grid cover the costs of any maintenance. Certainly this is are far less than the monthly price of renting anything comparable.
Do most people expect to live in their house until death? I like where I live, and have no immediate plans to move. If prices keep going the way that they have for the past 20 odd years, we will likely move to a cheaper location at some point in the future though . . . and will happily pocket the proceeds generated from our non-investment. As a naive and inexperienced person, I don't really view any primary residence as being permanent. Your life situation will change, so it's important to keep in mind what price your home is for when you are contemplating a sale.
Our (naive) strategy was to buy a house that we liked and could raise a family in that was available in an area we liked where we expected to live for 10+ years. We do regular (but minimal) maintenance on the home ourselves. In our inexperience we've never needed to forgo tax sheltered investments or to choose between paying off the mortgage and matching employer investment funds because that would be stupid - and an indication that we couldn't afford the home. Yes, it would likely have been less expensive to rent a camper van down by the river, or live in a one bedroom illegal basement apartment for a decade . . .but potential accumulation of fractionally more money isn't really my goal in life. Comfort and happiness are. The fact that our equities have under-performed the (apparently horribly depreciating) price of our home over the time of our ownership is a nice side bonus.
How do you get other people to do all that stuff for you for free? Most gardeners, plumbers, snow shovellers etc charge onerous amounts in my experience.
Unless you mean that you yourself are doing it with no cash out flow, and that your time is worth precisely zero. My time is not.
I think papa bear gets it. A home *is* an asset. All else being equal, I would rather have one that not, as the limited financial outlay and maintenance is worth less to me than the discomfort of having to sleep in a snowbank, which means it's a net gain for me, aka an investment with a non-cash return. A car too is an asset. It lets people get around much quicker than walking, and the time savings is worth more than the depreciation/gas/insurance to me.
Rich dad's make-believe definition aside, an asset is anything that provides value. That value need not be monetary. A functioning toilet is an asset. A vegetable garden is an asset since it provides food. A liability on the other hand is something which saps value and you want to be rid of. A mortgage is a liability. A clogged toilet is a liability. Cancer is a liability. If a house was truly a liability, then people should be jumping for joy when it burns down and is eliminated, in the same way they would when their cancer was eliminated.
So if your cancer causes you to reconsider your life and make better choices going forward it is an asset?
Is this cancer that gives you superpowers (like what happened to John Travolta in Phenomenon) or just regular cancer?
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I think there are situations when land could be an investment but generally its not since returns after expenses are not very good compared to other investments like stocks. There are a million other reasons to own land than for speculation.
I dont think you can compare a land to a stock investment. When you buy stock you are buying a portion of a company which exists to conduct operations which generate a profit which increases the stock price, or generate a dividend. While both the stock and land have the possibility of increasing or decreasing in value, the stock has a much higher chance due to the fact that you are really buying workers and an organization who are creating and selling something. Also, owning land has real expenses (taxes, maintenance, security, improvements, insurance, etc). It sure doesn't seem very common for investors to buy land solely with the plan to wait for it to appreciate then sell it. Usually investors buy land with a plan to develop it in some way. In a lot of areas once land owners start realizing that they are paying taxes and more on their land and it is'nt appreciating or if they just cant afford to, they just stop paying taxes on it. You can actually pay their taxes and take ownership of the land. This is actually not so uncommon.
Seems like gold would be a better investment than land and of a similar nature. Easier to own and manage and historically decent returns.
If you think land is a great investment there is nothing stopping you from buying it. Lots of cheap land is available in all areas of the country. As the saying goes, they ain't making it anymore.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
Non-dividend paying stock are not an investment either then, right? Because you're just holding them in speculation.
There's a difference between an asset just sitting there and stocks that makes for some confusion. You think of a non-dividend paying stock as just sitting there in your account the same way as a chunk of gold does. That's not accurate, though. That share is a share of something different from what you originally bought. The company you own has made money (hopefully), so now it's got more assets. You have a share of something that has grown in scope while you've held it. It's more like owning a share of a growing apple tree than owning something that is static. Another analogy would be buying a house that is busy flipping itself.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
Non-dividend paying stock are not an investment either then, right? Because you're just holding them in speculation.
There's a difference between an asset just sitting there and stocks that makes for some confusion. You think of a non-dividend paying stock as just sitting there in your account the same way as a chunk of gold does. That's not accurate, though. That share is a share of something different from what you originally bought. The company you own has made money (hopefully), so now it's got more assets. You have a share of something that has grown in scope while you've held it. It's more like owning a share of a growing apple tree than owning something that is static. Another analogy would be buying a house that is busy flipping itself.
The home you buy isn't static though. The value rises and falls based on a variety of factors, from development in the area, to improvements done, to changes in property tax, to changes in neighbourhood composition, to change in nearby employers, crime rate, etc.
Stock value is only loosely tied to company health and earnings. It's very easy to find examples of stocks valued quite highly purely on speculation (remember all those crypto stocks?). It's also not that hard to find samples of companies with good fundamentals that have lost significant value for stretches of time. I don't think the tree analogy is very good.
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I think there are situations when land could be an investment but generally its not since returns after expenses are not very good compared to other investments like stocks. There are a million other reasons to own land than for speculation.
I dont think you can compare a land to a stock investment. When you buy stock you are buying a portion of a company which exists to conduct operations which generate a profit which increases the stock price, or generate a dividend. While both the stock and land have the possibility of increasing or decreasing in value, the stock has a much higher chance due to the fact that you are really buying workers and an organization who are creating and selling something. Also, owning land has real expenses (taxes, maintenance, security, improvements, insurance, etc). It sure doesn't seem very common for investors to buy land solely with the plan to wait for it to appreciate then sell it. Usually investors buy land with a plan to develop it in some way. In a lot of areas once land owners start realizing that they are paying taxes and more on their land and it is'nt appreciating or if they just cant afford to, they just stop paying taxes on it. You can actually pay their taxes and take ownership of the land. This is actually not so uncommon.
Seems like gold would be a better investment than land and of a similar nature. Easier to own and manage and historically decent returns.
If you think land is a great investment there is nothing stopping you from buying it. Lots of cheap land is available in all areas of the country. As the saying goes, they ain't making it anymore.
Not true. There are plenty of public companies trading today that lose money every quarter and pay no dividend. If you buy shares in one of these companies are you not investing?
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I think there are situations when land could be an investment but generally its not since returns after expenses are not very good compared to other investments like stocks. There are a million other reasons to own land than for speculation.
I dont think you can compare a land to a stock investment. When you buy stock you are buying a portion of a company which exists to conduct operations which generate a profit which increases the stock price, or generate a dividend. While both the stock and land have the possibility of increasing or decreasing in value, the stock has a much higher chance due to the fact that you are really buying workers and an organization who are creating and selling something. Also, owning land has real expenses (taxes, maintenance, security, improvements, insurance, etc). It sure doesn't seem very common for investors to buy land solely with the plan to wait for it to appreciate then sell it. Usually investors buy land with a plan to develop it in some way. In a lot of areas once land owners start realizing that they are paying taxes and more on their land and it is'nt appreciating or if they just cant afford to, they just stop paying taxes on it. You can actually pay their taxes and take ownership of the land. This is actually not so uncommon.
Seems like gold would be a better investment than land and of a similar nature. Easier to own and manage and historically decent returns.
If you think land is a great investment there is nothing stopping you from buying it. Lots of cheap land is available in all areas of the country. As the saying goes, they ain't making it anymore.
Not true. There are plenty of public companies trading today that lose money every quarter and pay no dividend. If you buy shares in one of these companies are you not investing?
All my investments are winners!
Those losing stocks are just...play money?
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
The land generally isn't considered an investment either since:
-the land is USUALLY a small percentage of the value of the property, USUALLY around 20% of the value of the property. On page one some posters said their areas were unique in that land values were more than the buildings that occupied them. I believe them but this is very unusual and is not typical.
That was me, and my whole point was that it isn't unusual at all. The unusual thing is for the land to be worth very little. Only rural folk experience that. For everyone else, the land is highly valuable and the depreciation of the building is a cost that you account for as maintenance.
As GuitarStv has pointed out, the correct way to understand this is simply to look at what happens to real estate in your city or town over time. It generally goes up. That is, by definition, not a depreciating asset.
And as I like to keep saying, if owning a home isn't an investment, then what are the people who rent the homes to you doing? Keep in mind that every home is owned by someone and everyone lives in a home (unless you want to live in a homeless shelter). The people renting homes to you, unless they hate money, are trying to make a profit. That profit is yours if you own the home, and there is potentially much more of it considering that rental properties have much higher costs than owner-occupied properties.
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As to the house is not an investment:
Your house is an asset that depreciates over time. It’s not an investment unless you intend on selling it.
Your home should not depreciate unless you made a very bad decision. And how is it that it only becomes an investment if you sell it? Since you are always free to sell, it's neither here nor there.
As for the “it’s an investment because imputes rent” - I find that to be a bad analogy. That like saying your washing machine is an investment because it reduces the money you would have spent at the laundromat. That’s a terrible idea. Your house depreciates and does not return you any money, pay dividends, or earn income.
Houses generate income. If you don't believe that, I'll be happy to take that supposedly depreciating asset off your hands and rent it back to you.
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Your home should not depreciate unless you made a very bad decision.
Exactly, that's why very basic hunter-gatherer homes from like 50,000 years ago such as caves, even using a conservative valuation of a few dollars, and conservative appreciation of 0.05%, are worth billions today. Why shouldn't oil appreciate even more than houses? Not only are they not making more of it (unless you have 300m years to wait...) but we're actually burning up what we do have!
He's a brain exercise. In a closed system, with a stable population, what should the price of RE do, and why? Or food or gas for that matter? The same people go to the same jobs, and generate the same value for society each day for a decade. As a group, the produce the same quantiy of goods and services, and it's balanced by what the group consumes, each getting a slice of the pie according to the relative worth of what they contribute. This would be a zero growth society, but everyone fills a role, and everyone has the housing, food, and transport they need. I would argue in such a system all prices would remain the stable, subject to the vagaries of material changes to items such as depreciation, in which case you would pay a fixed about to repair it, and maintain your home at the same value.
Throw in some instabilities, such as technological improvements, and you'd actually either expect prices to drop, or goods generated to increase (bigger homes). Throw in a hurricane that wipes out a third of the homes, or a 10% influx of immigrants, and you'd expect homes to go up, due to higher demand. But after that initial shock to the system, you once again would expect it to find a stability point.
Go back 200 years. While times were much harder, you'd generally have expected probably similar allocations of people incomes to the big 3 things (home, food, transport). Call it 30/20/10 for arguments sake. As technology and sociological improvements occur, both incomes, and quality of goods produced improve (economic growth, in short, 'more stuff'), however, on a percentage basis, why should there be a huge variance in the percentages allocated to each thing? This is why when you look at housing over very long terms, you generally see it match inflation + GDP growth.
If what you're positing continues unabated where home prices increase faster than wages and inflation forever, what's the ad infinitum result? Basically what you have in Toronto now. Requiring 200% of the average Canadian income to buy a property which most would consider the absolute bottom of ownership - (ie a 300 sq ft condo) that costs 400k.
Take a look at an average 3br home, a 45 minute commute from Toronto, and you have to be a 1%er if you want to buy and maintain a historically sensible price/income ratio. So the situation is that you have to either be a 1%er, or over extend yourself to the gills to buy an average house. Neither bodes well for a stable society.
But, the fact remains, many people have made a lot money in the last decade of Canadian RE, and I fear it blinds them to a fierce and honest evaluation of the facts because they're so busy patting themselves on the back for being so brilliant. I saw the same thing in 99 with tech stocks, with gold and particularly silver in the late 2000s, and the same thing 18 months ago with bitcoin. It literally *is* on it's way to the moon. Until it isn't.
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I and every main stream economist agree with seadog. Read what shiller has to say about long term home prices. The fact of the matter is they cannot appreciate much more than inflation simply because in a few decades virtually nooone would be able to afford them and thus there would not be a market for them. Just like a climate change skeptics tout snowstorms in july as evidence that climate change is fake, the fact that your single house/land in the right place at the right time appreciated wildly doesnt change the fundamental economics of home prices. By definition the 1% is 1% of the population; if you do the math and wild appreciation results in houses in your area only being affordable for the 1% how is that sustainable for a population. Something has to give. Unlike the price of coca-cola people dont have unlimited money to spend on houses. The amount they can spend is limited by their income and rules on lending (around 30% PITI/income ratio). Add to this that the cost to build the same house gets cheaper over time due to technology. Thus stocks have much higher upside potential than houses, there is virtually no limit to how much money a company can make. Im sure some smartass here will say this is untrue since x stock crashed and is now worth 0$ and my RE agents girlfriends brother in laws house appreciated 10000% in one year.
aadsf seems to be confusing rental RE with primary residences when he says "houses generate income". as far as ive been concerned this whole thread is about primary residences. Rental RE truly is an investment or maybe even more like a small business and deserves its own thread. This thread is about primary residences.
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Lurker here: thank you for the comments. I came here trying to cure myself of "house fever", and I think it's working.
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Your home should not depreciate unless you made a very bad decision.
Exactly, that's why very basic hunter-gatherer homes from like 50,000 years ago such as caves, even using a conservative valuation of a few dollars, and conservative appreciation of 0.05%, are worth billions today. Why shouldn't oil appreciate even more than houses? Not only are they not making more of it (unless you have 300m years to wait...) but we're actually burning up what we do have!
I betcha that that cave in Manhattan is worth billions more than the basic hunter-gatherer paid for it.
He's a brain exercise. In a closed system, with a stable population, what should the price of RE do, and why? Or food or gas for that matter? The same people go to the same jobs, and generate the same value for society each day for a decade. As a group, the produce the same quantiy of goods and services, and it's balanced by what the group consumes, each getting a slice of the pie according to the relative worth of what they contribute. This would be a zero growth society, but everyone fills a role, and everyone has the housing, food, and transport they need. I would argue in such a system all prices would remain the stable, subject to the vagaries of material changes to items such as depreciation, in which case you would pay a fixed about to repair it, and maintain your home at the same value.
Throw in some instabilities, such as technological improvements, and you'd actually either expect prices to drop, or goods generated to increase (bigger homes). Throw in a hurricane that wipes out a third of the homes, or a 10% influx of immigrants, and you'd expect homes to go up, due to higher demand. But after that initial shock to the system, you once again would expect it to find a stability point.
Well, we don't live in a closed system . . . and populations have never been stable, so we're going from incorrect assumptions here . . . but sure. As long as supply is infinitely increasing that's exactly what you would expect . . . a price drop. Most cities do not have an infinite supply of land however. As that land is used up, it's completely natural that the price of houses should rise near economic centers. Technological improvements have allowed us to fit more people into smaller areas (through stuff like condos), but actual land is still the limiting factor that you keep running into.
Go back 200 years. While times were much harder, you'd generally have expected probably similar allocations of people incomes to the big 3 things (home, food, transport). Call it 30/20/10 for arguments sake. As technology and sociological improvements occur, both incomes, and quality of goods produced improve (economic growth, in short, 'more stuff'), however, on a percentage basis, why should there be a huge variance in the percentages allocated to each thing? This is why when you look at housing over very long terms, you generally see it match inflation + GDP growth.
200 years ago was the time of the potato famine in Ireland. There was no transportation expense for the average person, as you didn't have anywhere you could go. Virtually none of the people owned their own home, they paid rent from wealthy land owners. The wealthy land owners then took the food that they farmed, leaving them to starve quite literally do death.
The argument that we should try to match the income allocations of today to hundreds of years in the past makes about as much sense as matching your modern diet to that of people in the past who had a lifespan of less than a third of what the modern person enjoys.
If what you're positing continues unabated where home prices increase faster than wages and inflation forever, what's the ad infinitum result? Basically what you have in Toronto now. Requiring 200% of the average Canadian income to buy a property which most would consider the absolute bottom of ownership - (ie a 300 sq ft condo) that costs 400k.
Take a look at an average 3br home, a 45 minute commute from Toronto, and you have to be a 1%er if you want to buy and maintain a historically sensible price/income ratio. So the situation is that you have to either be a 1%er, or over extend yourself to the gills to buy an average house. Neither bodes well for a stable society.
But, the fact remains, many people have made a lot money in the last decade of Canadian RE, and I fear it blinds them to a fierce and honest evaluation of the facts because they're so busy patting themselves on the back for being so brilliant. I saw the same thing in 99 with tech stocks, with gold and particularly silver in the late 2000s, and the same thing 18 months ago with bitcoin. It literally *is* on it's way to the moon. Until it isn't.
How do you feel about the price of real estate in New York? Paris? Hong Kong? London? Las Angeles? When do you expect prices to return to normal in these cities? When the land starts to get used up around a major economic center, prices go up . . . and never come down to those enjoyed by people living in more rural areas. That seems to be the nature of things.
I'm not a 1%er (have never even made six figures in a year), but bought and completely paid off my freehold detached home in Toronto. I don't expect prices to continue to rise at the pace they have for the last while . . . but I'd be quite surprised to see a crash down to price/income ratios that you seem to be expecting. There is a lot of demand, there is constant immigration into the city for economic reasons, and there isn't more land to build on.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
Non-dividend paying stock are not an investment either then, right? Because you're just holding them in speculation.
There's a difference between an asset just sitting there and stocks that makes for some confusion. You think of a non-dividend paying stock as just sitting there in your account the same way as a chunk of gold does. That's not accurate, though. That share is a share of something different from what you originally bought. The company you own has made money (hopefully), so now it's got more assets. You have a share of something that has grown in scope while you've held it. It's more like owning a share of a growing apple tree than owning something that is static. Another analogy would be buying a house that is busy flipping itself.
The home you buy isn't static though. The value rises and falls based on a variety of factors, from development in the area, to improvements done, to changes in property tax, to changes in neighbourhood composition, to change in nearby employers, crime rate, etc.
Stock value is only loosely tied to company health and earnings. It's very easy to find examples of stocks valued quite highly purely on speculation (remember all those crypto stocks?). It's also not that hard to find samples of companies with good fundamentals that have lost significant value for stretches of time. I don't think the tree analogy is very good.
Except for improvements all those factors you list aren't things you or a manager is actively doing to make the house worth more. If it's not something you or a manager is doing, you're just speculating that you'll get lucky on property taxes, neighborhood desirability, local economy, etc.
Improvements are an investment if you're doing it to sell the house. If not they're just consumption.
In the short term stock value is only loosely tied to company health and earnings, but in the long term they are quite closely related. Long term is what matters. Some investments don't do well, but there is still something being actively done to pursue a real return.
The tree analogy is decent because an apple tree can wither and die or run into bad years, but it's still trying to grow and make apples to whatever amount of success.
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Im sure some smartass here will say this is untrue since x stock crashed and is now worth 0$ and my RE agents girlfriends brother in laws house appreciated 10000% in one year.
I feel that this comment is directed at me. I was not being a smart ass I was asking a serious question. Here is what I wrote upthread: "There are plenty of public companies trading today that lose money every quarter and pay no dividend. If you buy shares in one of these companies are you not investing?" I'm referring to companies like Lyft and Pinterest and Tesla. These are loss making companies. Are the people buying shares of these companies making an investment? Serious question. A company like Amazon took a long time to make a profit. The "investors" who bought Amazon eighteen years ago had a long enough time horizon that they thought that profits would eventually materialize. How is that different from someone who buys a house with the knowledge that in fifteen or thirty years the expense to live there will be greatly reduced.
Here is the Cambridge dictionary definition of investment: the act of putting money or effort into something to make a profit or achieve a result. A house is clearly an investment. It is silly to say it is not. The only question is if it is a good investment.
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Here is the Cambridge dictionary definition of investment: the act of putting money or effort into something to make a profit or achieve a result. A house is clearly an investment. It is silly to say it is not. The only question is if it is a good investment.
That's an interesting definition. If we followed that definition, what matters isn't the thing money is being spent on but the intent of the person spending the money.
Since I did not spend money on my house in order to make more money later, my house would not an investment.
If you decided to buy a house because you wanted to make more money by selling it later, then your house would be an investment (regardless of whether you actually clear a profit or not).
Just as an aside, adopting this definition would also mean many people did "invest" in bitcoin, since during the run up in prices in 2017 a lot of people sucked in surely did intend to make a profit. ;-)
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He's a brain exercise. In a closed system, with a stable population, what should the price of RE do, and why? Or food or gas for that matter? The same people go to the same jobs, and generate the same value for society each day for a decade. As a group, the produce the same quantiy of goods and services, and it's balanced by what the group consumes, each getting a slice of the pie according to the relative worth of what they contribute. This would be a zero growth society, but everyone fills a role, and everyone has the housing, food, and transport they need. I would argue in such a system all prices would remain the stable, subject to the vagaries of material changes to items such as depreciation, in which case you would pay a fixed about to repair it, and maintain your home at the same value.
Throw in some instabilities, such as technological improvements, and you'd actually either expect prices to drop, or goods generated to increase (bigger homes). Throw in a hurricane that wipes out a third of the homes, or a 10% influx of immigrants, and you'd expect homes to go up, due to higher demand. But after that initial shock to the system, you once again would expect it to find a stability point.
Well, we don't live in a closed system . . . and populations have never been stable, so we're going from incorrect assumptions here . . . but sure. As long as supply is infinitely increasing that's exactly what you would expect . . . a price drop. Most cities do not have an infinite supply of land however. As that land is used up, it's completely natural that the price of houses should rise near economic centers. Technological improvements have allowed us to fit more people into smaller areas (through stuff like condos), but actual land is still the limiting factor that you keep running into.
You're still speculating on all those external factors and not making any actual return.
If what you're positing continues unabated where home prices increase faster than wages and inflation forever, what's the ad infinitum result? Basically what you have in Toronto now. Requiring 200% of the average Canadian income to buy a property which most would consider the absolute bottom of ownership - (ie a 300 sq ft condo) that costs 400k.
Take a look at an average 3br home, a 45 minute commute from Toronto, and you have to be a 1%er if you want to buy and maintain a historically sensible price/income ratio. So the situation is that you have to either be a 1%er, or over extend yourself to the gills to buy an average house. Neither bodes well for a stable society.
But, the fact remains, many people have made a lot money in the last decade of Canadian RE, and I fear it blinds them to a fierce and honest evaluation of the facts because they're so busy patting themselves on the back for being so brilliant. I saw the same thing in 99 with tech stocks, with gold and particularly silver in the late 2000s, and the same thing 18 months ago with bitcoin. It literally *is* on it's way to the moon. Until it isn't.
How do you feel about the price of real estate in New York? Paris? Hong Kong? London? Las Angeles? When do you expect prices to return to normal in these cities? When the land starts to get used up around a major economic center, prices go up . . . and never come down to those enjoyed by people living in more rural areas. That seems to be the nature of things.
I'm not a 1%er (have never even made six figures in a year), but bought and completely paid off my freehold detached home in Toronto. I don't expect prices to continue to rise at the pace they have for the last while . . . but I'd be quite surprised to see a crash down to price/income ratios that you seem to be expecting. There is a lot of demand, there is constant immigration into the city for economic reasons, and there isn't more land to build on.
Try Birmingham, Cleveland, Detroit, rural Nebraska, etc. They were once places that had a really bright future, too.
And then more than not, places are like my hometown. The economy is doing well, but real estate generally just more or less keeps up with inflation.
Also, we're in a period where interest rates have been low for a really long time historically. If interest rates go back up, it will cut off some of the money that's going into these places.
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OK. So a house isn't an investment . . . but the land that it's sitting on absolutely is. But land is effectively inseparable from a house in most cases, so I'm not sure why we're artificially separating them in this discussion. Is there anyone in this conversation who expects to be able to realize a return selling a house, but not the land it sits on?
Land is not an investment in and of itself. An investment produces a return, and land doesn't produce that if it's just sitting there. You get a return by renting it, improving it, farming it, running a business on it, etc. Just holding land to sell it for more later is speculation, not investment. It's probably a good bet that land in Toronto will go up in value, but it's still just a bet with no actual return.
(Sorry to go back a bit, but I don't think the point was made)
Non-dividend paying stock are not an investment either then, right? Because you're just holding them in speculation.
There's a difference between an asset just sitting there and stocks that makes for some confusion. You think of a non-dividend paying stock as just sitting there in your account the same way as a chunk of gold does. That's not accurate, though. That share is a share of something different from what you originally bought. The company you own has made money (hopefully), so now it's got more assets. You have a share of something that has grown in scope while you've held it. It's more like owning a share of a growing apple tree than owning something that is static. Another analogy would be buying a house that is busy flipping itself.
The home you buy isn't static though. The value rises and falls based on a variety of factors, from development in the area, to improvements done, to changes in property tax, to changes in neighbourhood composition, to change in nearby employers, crime rate, etc.
Stock value is only loosely tied to company health and earnings. It's very easy to find examples of stocks valued quite highly purely on speculation (remember all those crypto stocks?). It's also not that hard to find samples of companies with good fundamentals that have lost significant value for stretches of time. I don't think the tree analogy is very good.
Except for improvements all those factors you list aren't things you or a manager is actively doing to make the house worth more. If it's not something you or a manager is doing, you're just speculating that you'll get lucky on property taxes, neighborhood desirability, local economy, etc.
Improvements are an investment if you're doing it to sell the house. If not they're just consumption.
In the short term stock value is only loosely tied to company health and earnings, but in the long term they are quite closely related. Long term is what matters. Some investments don't do well, but there is still something being actively done to pursue a real return.
The tree analogy is decent because an apple tree can wither and die or run into bad years, but it's still trying to grow and make apples to whatever amount of success.
Nothing that you do is actively improving a stock you hold either . . . but if we're talking about abstract managers, the city you live in has a variety of managers in various levels of government. From the mayor to city Councillors, to the Prime Minister/President there are a lot of people who are working for your betterment all the time.
I really think that this line of reasoning is a stretch to pursue . . . there's little difference between holding a very expensive non-dividend paying stock in a company and the deed to a home.
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Nothing that you do is actively improving a stock you hold either . . . but if we're talking about abstract managers, the city you live in has a variety of managers in various levels of government. From the mayor to city Councillors, to the Prime Minister/President there are a lot of people who are working for your betterment all the time.
I really think that this line of reasoning is a stretch to pursue . . . there's little difference between holding a very expensive non-dividend paying stock in a company and the deed to a home.
I think this line of reasoning is accurate, and you're just trying to dismiss it.
There's not really a comparison between the executives managing your company and the government that manages your city in general. The executives are managing assets that belong to you. Just because you don't see Berkshire Hathaway's cash flowing into your own bank account doesn't mean it's not yours. The city government, on the other hand, is not actively trying to make you a direct monetary profit.
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there's little difference between holding a very expensive non-dividend paying stock in a company and the deed to a home.
Huge differences between a stock in a company a deed to a home. For starters the home has large and continual expenses that whos costs are not recovered till you sell the home and may never be recovered. I think you may be confusing rental real estate with primary residences.
Whoever used the example of NY, SF, etc as an example of home prices appreciating should try picking the next NY, or SF. Or buy property in NY or SF now at any price since you seem to believe it will continue to appreciate forever.
This thread is about primary residence real estate. Primary residence is the home you live in. Each person only has one primary residence. Once you buy a new primary residence and turn the old one into a rental, the old building becomes an investment (and very often a good one). Again, some of you are confusing rental real estate with primary residences. No one doubts that rental real estate whether it be single family homes or apartment buildings or commercial real estate is an investment.
Im still waiting for someone to tell me how I make my primary residence an investment with returns competitive to other investments. The fact that your real estate agents brothers sister in law bought a cottage in silicon valley when it was an orange grove in the 70s for $100k and sold it last year for $2.5m doesn't convince me that primary residences make good investments.
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Here is the Cambridge dictionary definition of investment: the act of putting money or effort into something to make a profit or achieve a result. A house is clearly an investment. It is silly to say it is not. The only question is if it is a good investment.
That's an interesting definition. If we followed that definition, what matters isn't the thing money is being spent on but the intent of the person spending the money.
Since I did not spend money on my house in order to make more money later, my house would not an investment.
If you decided to buy a house because you wanted to make more money by selling it later, then your house would be an investment (regardless of whether you actually clear a profit or not).
Just as an aside, adopting this definition would also mean many people did "invest" in bitcoin, since during the run up in prices in 2017 a lot of people sucked in surely did intend to make a profit. ;-)
You are ignoring the last part of the definition. If you did not spend money on your house in order to make more money later you must have been trying to "achieve a result". I bought my house so that I could provide a nice place to raise my family. I didn't want to be subject to the whims and needs of a landlord and I wanted to live exactly where I wanted. I felt that this was important enough to me that I should make an investment toward that end.
I feel like intent is clearly the most important aspect. Of course people were investing in bitcoin. What else would you call it. It just happened to be a bad investment if you bought at the top. If you bought at $100 a bitcoin it was a good investment. Simple as that. Why the confusion?
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Nothing that you do is actively improving a stock you hold either . . . but if we're talking about abstract managers, the city you live in has a variety of managers in various levels of government. From the mayor to city Councillors, to the Prime Minister/President there are a lot of people who are working for your betterment all the time.
I really think that this line of reasoning is a stretch to pursue . . . there's little difference between holding a very expensive non-dividend paying stock in a company and the deed to a home.
I think this line of reasoning is accurate, and you're just trying to dismiss it.
There's not really a comparison between the executives managing your company and the government that manages your city in general. The executives are managing assets that belong to you. Just because you don't see Berkshire Hathaway's cash flowing into your own bank account doesn't mean it's not yours. The city government, on the other hand, is not actively trying to make you a direct monetary profit.
I don't agree. A public company that has issued stock but does not pay dividends isn't trying to make you (shareholder of two stocks) any direct monetary profit. They're doing what they think is best for their business, and using your money to do that. . . if they make good decisions it's likely to improve the value of your stock, but they don't give a crap about you or your personal profits. Which is in the same level of care that I'd expect from a mayor of a city . . . he wants to keep the city functioning smoothly, crime down, and property taxes to a level where he'll get re-elected . . . which is likely (in the long run) to increase the value of your home. He doesn't give a crap about the value of your home though.
Im still waiting for someone to tell me how I make my primary residence an investment with returns competitive to other investments. The fact that your real estate agents brothers sister in law bought a cottage in silicon valley when it was an orange grove in the 70s for $100k and sold it last year for $2.5m doesn't convince me that primary residences make good investments.
You realize the investment when you sell the property . . . just as you don't actually have any gains from holding a stock, only when you sell it. The returns you get for the residence will depend on how good a home picker you were . . . just as the returns on an individual stock will depend on how good a stock picker you were.
My home has appreciated more than my index funds over the past ten years. I doubt that I could pick another home that did the same . . . just as I have little faith that I could pick an individual stock that will beat the market. But that doesn't mean that a home isn't an investment.
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I was going to comment earlier and perhaps I should have, but the issue is that the word "investment" (like many words) has several different meanings. The hang up here is people are using the same word to mean different things. If you say "I invested in a good pair of shoes" that's a little different meaning than saying "I invested in 100 shares of Exxonmobile." Similar, but not the same.
When people talk about a home as an investment, they are usually thinking "it will make money for me over time." And that can be true. For a lot of Americans the majority of their net worth is tied up in their home. Hence many people thing they should buy a home as an investment because that's the path to wealth.
However, that's not necessarily true. The rent vs. buy calculation shows the path to wealth could be greater through renting. For that reason, even though it is technically correct to say a house is an investment in some contexts, I prefer to refer to it as an expense. And like all expenses, it is wise to minimize it.
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there's little difference between holding a very expensive non-dividend paying stock in a company and the deed to a home.
Huge differences between a stock in a company a deed to a home. For starters the home has large and continual expenses that whos costs are not recovered till you sell the home and may never be recovered. I think you may be confusing rental real estate with primary residences.
Whoever used the example of NY, SF, etc as an example of home prices appreciating should try picking the next NY, or SF. Or buy property in NY or SF now at any price since you seem to believe it will continue to appreciate forever.
This thread is about primary residence real estate. Primary residence is the home you live in. Each person only has one primary residence. Once you buy a new primary residence and turn the old one into a rental, the old building becomes an investment (and very often a good one). Again, some of you are confusing rental real estate with primary residences. No one doubts that rental real estate whether it be single family homes or apartment buildings or commercial real estate is an investment.
Im still waiting for someone to tell me how I make my primary residence an investment with returns competitive to other investments. The fact that your real estate agents brothers sister in law bought a cottage in silicon valley when it was an orange grove in the 70s for $100k and sold it last year for $2.5m doesn't convince me that primary residences make good investments.
I'm not confusing my primary residence with my rental houses. I have one primary and three rentals. They are all investments. You are the one who is confused that there has to be an equivalence between all investments. There are gradations. Some investments are good and some are not as good. That doesn't mean the less good investments cease to be investments.
Your time horizon seems strange to me. To use your example, say you buy a little house. You intend to live there for some time period (which also helps with cheaper financing) and then you will turn it into a rental later. Is it only a good investment when you get the first rent check? Or the one hundredth? What if after a few years of renting it you decide to move back in because the loan is paid off and you could save a lot of money on rent? Would it still be a good investment? What if you skipped the step of moving out and turning it into a rental?
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Guitar Stv: For starters the stock is ownership in an organization whos purpose is to create a profit and grow the business. The primary residence is a physically depreciating building on a piece of land. The primary residence has large ownership costs while the stock has 0 ownership costs. local government affects on home prices is a bit of a stretch, i could say the same about governments affects on a business that i own stock in.
The problem isn't that you realize the returns when you sell the property. that is not the defining factor that makes the primary residence an asset and the stock an investment. There are many reasons but the main one of importance to me is that the returns for the primary residence are expected to be very low (around the rate of inflation) for a multitude of reasons. Read my posts in 3 pages for reasons why only a fool would expect similar returns from a profit motivated company vs their primary residence.
I bought my first house in 2008 and sold it in 2016 for 240% of what I purchased it for. Like you im not stupid enough to think that that I can repeat that performance. There are exceptions to everything but the data support my argument and destroy your argument.
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I was going to comment earlier and perhaps I should have, but the issue is that the word "investment" (like many words) has several different meanings. The hang up here is people are using the same word to mean different things. If you say "I invested in a good pair of shoes" that's a little different meaning than saying "I invested in 100 shares of Exxonmobile." Similar, but not the same.
When people talk about a home as an investment, they are usually thinking "it will make money for me over time." And that can be true. For a lot of Americans the majority of their net worth is tied up in their home. Hence many people thing they should buy a home as an investment because that's the path to wealth.
However, that's not necessarily true. The rent vs. buy calculation shows the path to wealth could be greater through renting. For that reason, even though it is technically correct to say a house is an investment in some contexts, I prefer to refer to it as an expense. And like all expenses, it is wise to minimize it.
I agree.
This forum seems to be filled with smart people trying to make smart decisions. That's why it leaves me cold when people make blanket dogmatic statements. There's more than one way to skin a cat. Every situation is different. Every real estate market is different. No one rule is going to be right for everyone.
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If we just agree to state that the primary residence is an investment but a terrible one compared to the alternatives, will that make everyone happy?
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If we just agree to state that the primary residence is an investment but a terrible one compared to the alternatives, will that make everyone happy?
Completely through luck my primary residence has been a better investment for me than the alternatives. It's a good thing I didn't listen to this advice ten years ago, or I would be much poorer . . . between the cost of rent and the under-performance of equity over that period.
:P
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For a lot of Americans the majority of their net worth is tied up in their home.
But that fact doesn't mean the home was a good investment. In most cases it was a more like a form of forced savings. Calculating the return on an investment for a property is much more complicated than stating the amount of equity one has in the property.
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If we just agree to state that the primary residence is an investment but a terrible one compared to the alternatives, will that make everyone happy?
Completely through luck my primary residence has been a better investment for me than the alternatives. It's a good thing I didn't listen to this advice ten years ago, or I would be much poorer . . . between the cost of rent and the under-performance of equity over that period.
:P
I bet it wasn't completely luck but when we say the home is not a good investment we are speaking in broad terms and the data support the fact that homes are not good investments compared to the alternatives. This thread is not about you and your home. Homes are not good investments not because people are bad at picking them but because of large scale economic factors that limit their appreciation like affordability and technology.
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Completely through luck my primary residence has been a better investment for me than the alternatives. It's a good thing I didn't listen to this advice ten years ago, or I would be much poorer . . . between the cost of rent and the under-performance of equity over that period.
:P
No, you wouldn't be poorer because this is your primary residence and you needed a place to live. Assuming that like me you bought the house because you wanted to own your own home and have a nice place to live you would not have done anything differently. Its not like you would not have bought the house if you thought it would not have appreciated as much. Also, hindsight is 20/20, just because you made more money via the home purchase does not mean it was the wise purchase given the information you had at the time of purchase.
Also, home prices trends are in line with stock price trends so you might be surprised at what might have happened if you had invested your downpayment and home prices above the cost to rent in the market.
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Here is the Cambridge dictionary definition of investment: the act of putting money or effort into something to make a profit or achieve a result. A house is clearly an investment. It is silly to say it is not. The only question is if it is a good investment.
That's an interesting definition. If we followed that definition, what matters isn't the thing money is being spent on but the intent of the person spending the money.
Since I did not spend money on my house in order to make more money later, my house would not an investment.
If you decided to buy a house because you wanted to make more money by selling it later, then your house would be an investment (regardless of whether you actually clear a profit or not).
Just as an aside, adopting this definition would also mean many people did "invest" in bitcoin, since during the run up in prices in 2017 a lot of people sucked in surely did intend to make a profit. ;-)
You are ignoring the last part of the definition. If you did not spend money on your house in order to make more money later you must have been trying to "achieve a result". I bought my house so that I could provide a nice place to raise my family. I didn't want to be subject to the whims and needs of a landlord and I wanted to live exactly where I wanted. I felt that this was important enough to me that I should make an investment toward that end.
I feel like intent is clearly the most important aspect. Of course people were investing in bitcoin. What else would you call it. It just happened to be a bad investment if you bought at the top. If you bought at $100 a bitcoin it was a good investment. Simple as that. Why the confusion?
Okay, if your assertion is that a primary residence is as much of an investment as is bitcoin or a new pair of shoes* then I don't believe there is any disagreement about facts, just disagreement about what different words mean.
As long as we agree on the former, the latter argument is a boring one.
(https://imgs.xkcd.com/comics/winter_2x.png)
Peace.
*Bought to achieve the goal of having your feet hurt less.
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Completely through luck my primary residence has been a better investment for me than the alternatives. It's a good thing I didn't listen to this advice ten years ago, or I would be much poorer . . . between the cost of rent and the under-performance of equity over that period.
:P
No, you wouldn't be poorer because this is your primary residence and you needed a place to live. Assuming that like me you bought the house because you wanted to own your own home and have a nice place to live you would not have done anything differently. Its not like you would not have bought the house if you thought it would not have appreciated as much. Also, hindsight is 20/20, just because you made more money via the home purchase does not mean it was the wise purchase given the information you had at the time of purchase.
Also, home prices trends are in line with stock price trends so you might be surprised at what might have happened if you had invested your downpayment and home prices above the cost to rent in the market.
With respect, you don't know anything about me. No, stock prices have not outpaced our home appreciation.
Yes, if I had followed the advice commonly given out here I would be poorer because we never would have purchased our home. Sure we needed a place to live, but could have rented as is commonly suggested.
I guess that my point is . . . it's important to remember that while historical averages can give you a lot of data that can help shape guidance, your life isn't lived on average. You're an individual dot moving through the world in your own unique way. Sometimes commonly accepted wisdom is wrong for you.
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Yeah but as thoughtful investors we ought to make the best decisions we can based on the information we have available to us. Did you have information available to you that supported your decision to buy your house vs rent and invest or was that a hail mary?
Im not suggesting that anyone rent vs buy. Im just saying if you decide to buy a home, buy it for the right reasons and with expectations that are based on facts.
If anything the "commonly accepted wisdom" is to buy houses. Commonly accepted wisdom is'nt always right.
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No, stock prices have not outpaced our home appreciation.
Do you know this for sure? Have you tracked all the money you spent maintaining and/or improving your home? I have, and my home has appreciated a lot, but I'm not so sure it's outpaced equities. The 10 year total return for VTSAX is 343% as of 3/31/2019. I put 120k down on our house, so just the down payment would be $411,600 right now if I'd invested it instead. I've also spent a couple hundred thousand dollars in upgrades, repairs, and taxes that I would not have spent had I rented. All told I've put $319,623 in cash into my house and the only return on investment so far is a place to live. If I sold it today, I'd probably walk away with $344,000 or so in cash net of selling costs. If I'd invested all that money spread over the same period I'd be at about $460,000 in cash now.
The difficulty lies in trying to figure out what a comparable rental would have cost all in for the same period, and I'm not sure how to find that. Obviously rent could take the net below what the house return has been, but by how much I don't know.
My point is that it's easy to see a big number of house appreciation and make assumptions - but have you actually done the math?
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I thought the same thing as overlook but sounds like GuitarSrv is confident that his home had better appreciation than the markets and he seemed to get mad when I brought this up. Id add that the transaction costs to sell the home are around 7% although that may be balanced out by the capital gains exclusion on primary residences in the US vs capital gains on investment income. The thing is virtually noone tracks their primary residence expenses, and I dont blame them.
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Here is the Cambridge dictionary definition of investment: the act of putting money or effort into something to make a profit or achieve a result. A house is clearly an investment. It is silly to say it is not. The only question is if it is a good investment.
That's an interesting definition. If we followed that definition, what matters isn't the thing money is being spent on but the intent of the person spending the money.
Since I did not spend money on my house in order to make more money later, my house would not an investment.
If you decided to buy a house because you wanted to make more money by selling it later, then your house would be an investment (regardless of whether you actually clear a profit or not).
Just as an aside, adopting this definition would also mean many people did "invest" in bitcoin, since during the run up in prices in 2017 a lot of people sucked in surely did intend to make a profit. ;-)
You are ignoring the last part of the definition. If you did not spend money on your house in order to make more money later you must have been trying to "achieve a result". I bought my house so that I could provide a nice place to raise my family. I didn't want to be subject to the whims and needs of a landlord and I wanted to live exactly where I wanted. I felt that this was important enough to me that I should make an investment toward that end.
I feel like intent is clearly the most important aspect. Of course people were investing in bitcoin. What else would you call it. It just happened to be a bad investment if you bought at the top. If you bought at $100 a bitcoin it was a good investment. Simple as that. Why the confusion?
Okay, if your assertion is that a primary residence is as much of an investment as is bitcoin or a new pair of shoes* then I don't believe there is any disagreement about facts, just disagreement about what different words mean.
As long as we agree on the former, the latter argument is a boring one.
(https://imgs.xkcd.com/comics/winter_2x.png)
Peace.
*Bought to achieve the goal of having your feet hurt less.
For the record I'm not the one who suggested that a new pair of shoes is an investment. There are scenarios where they could be though. Say that you got a new high paying job that had a dress code. You might need to buy clothes and shoes so that you could make more money. To me that would be an investment in your future earning potential.
I don't agree that we don't agree about the meaning the words we are using. If you think that we do, please give me your definition of investment.
To me my primary residence is an investment without a shadow of a doubt. In my opinion, diversity is the only free lunch in the investing world. The bulk of my wealth, about sixty percent, is in equities. About thirty percent is in real estate, including my rentals and my primary. The last ten percent is in fixed income. For me and my risk tolerance this 60/30/10 allocation makes the most sense. Real estate fills the portion of my portfolio that might be allocated to fixed income because I believe it will have superior performance in the long run. If you are skeptical of this check out the Feredal Reserves paper on the rate of return on everything https://www.frbsf.org/economic-research/files/wp2017-25.pdf I've been a serious investor since 1989 and every time the market crashes, and I mean crashes, I thank my lucky stars for my real estate holdings because people still need a place to live, including me and my family. Now would it be better, as some people seem to suggest, if I rented out my primary residence and then rented a house from some one else? Would my house then rise to the level of an almighty investment? Would I be a better investor? Not to me. That makes no sense to me. Please enlighten me to the errors of my ways?
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You are ignoring the last part of the definition. If you did not spend money on your house in order to make more money later you must have been trying to "achieve a result".
For the record I'm not the one who suggested that a new pair of shoes is an investment. There are scenarios where they could be though. Say that you got a new high paying job that had a dress code. You might need to buy clothes and shoes so that you could make more money. To me that would be an investment in your future earning potential.
You're the one who proposed a definition of investment that was satisfied as long as your goal is to "achieve a result."
Do you disagree with your own proposed definition or do you disagree that having more comfortable feet is "a result"?
I don't agree that we don't agree about the meaning the words we are using.
That's certainly your prerogative.
If you chose to believe that I believe the same thing as you, despite my stating that I disagree with you, I don't suppose there is anything else I can do to shake faith/certainty on that level.
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Maizeman please give me your definition of "investment". I sincerely want to know what the disagreement is.
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Maizeman please give me your definition of "investment". I sincerely want to know what the disagreement is.
My disagreement is that if an investment is any use of money* to "achieve a result" then there is no difference between an investment and simply spending money. Any time a person chooses to spend money they have some goal or another in mind.
By that definition, it would be perfectly reasonable to say "I chose to invest in this cheeseburger so I wouldn't be so hungry."
*Or effort, which was also part of the definition you proposed.
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My disagreement is that if an investment is any use of money* to "achieve a result" then there is no difference between an investment and simply spending money. Any time a person chooses to spend money they have some goal or another in mind.
By that definition, it would be perfectly reasonable to say "I chose to invest in this cheeseburger so I wouldn't be so hungry."
*Or effort, which was also part of the definition you proposed.
I was just about to make that exact point, except use the example of "investing" in drugs. In total terms of financial loss vs non-financial gain, it's a net win for me otherwise I wouldn't have spent money. The difference between the financial outlay, and the non-financial return is my "profit".
Obviously putting money into shares of XOM are an investment as it generates cash returns. "Investing" in a car vs taxis has a return via money *not* spent. Penny saved is a penny earned etc etc. A primary residence is similar, but in addition you have a far greater chance of appreciation, but also far more expenses which most people conveniently ignore. Next up might be shoes, who's returns are wholly non-cash, and not even quantifiable. Then finally fleeting things like food and drugs.
All of those things provide a return for money out. One could argue all are investments. But if everything is an investment than nothing is. You need to draw an arbitrary line somewhere, and ultimately to each their own I guess? I kind of like the idea of the intent taking a front and center role. After all that's the difference between negligence causing death and 1st degree murder. Turns out Jack *did* invest in magic beans.
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I'm not a 1%er (have never even made six figures in a year), but bought and completely paid off my freehold detached home in Toronto. I don't expect prices to continue to rise at the pace they have for the last while . . . but I'd be quite surprised to see a crash down to price/income ratios that you seem to be expecting. There is a lot of demand, there is constant immigration into the city for economic reasons, and there isn't more land to build on.
I'm not doubting you, but that likely means you got in years ago. Here's some real numbers for today. Average home in Toronto is $914k.
https://www.zolo.ca/toronto-real-estate/trends
A quick mortgage search shows about 3.5%, historically low. Since we're being responsible and can't lock in for 30 years like the US, we can assume a buffer of 2%, or to be truly responsible something like the historical average of 7.5%.
With your typical responsible 20% down, 25 yr terms, and assuming a historically responsible mortgage to income ratio of 30%, here are the numbers for payment and income:
3.5%- 3645 / 12150/mth
5.5%- 4456 / 14853/mth
7.5%- 5340 / 17800/mth
To buy an average home, with any semblance of prudence you need an income of close to 200k a year.
Take a look at average incomes: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110019301
Top decile (2017) was 123k. To buy the average home, even assuming the most rosy terms possible and assuming they never change (20% down, 3% promotional rate, 30 year term), your payment is *still* 3k, so basically on par for someone at the cusp of the top 10% income earners.
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I do consider my 'Home' as an investment.
My ‘Home’ is a long-term investment in a commodity (like gold) that hedges me against rises in mortgage interest rates, rental increases, salary increases, price fluctuations, rising material costs, and location. I threw salary increases because I believe there is a correlation in the % that individuals earn to what can be afforded by mortgage or rent. US salaries have slowly been on the rise. Mortgage interest rates have been historically low.
It may NOT be a better investment than the stock market or another Vanguard fund. However, I did have to live somewhere. Because of that I made the best choice for me depending on my location and monthly expenses of living in a ‘Home’. I personally believe that I came out ahead of a renter because I have equity in something that has a financial value if I go to sell the ‘Home’.
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What if we change the choice slightly:
You're going to own a home. But will you buy a home that costs 2*your annual income or 7*your income?
Some of this may be out of your control based on the area you live.
But most people probably are in a situation in which they can change the price of their house by 10%, buying more house or less. And that choice affects the ability to engage in other investing. Should you upgrade from a $440,000 house to a $500,000 house? That upgrade may not be a wise investment compared to the rest of the house.
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I'm not a 1%er (have never even made six figures in a year), but bought and completely paid off my freehold detached home in Toronto. I don't expect prices to continue to rise at the pace they have for the last while . . . but I'd be quite surprised to see a crash down to price/income ratios that you seem to be expecting. There is a lot of demand, there is constant immigration into the city for economic reasons, and there isn't more land to build on.
I'm not doubting you, but that likely means you got in years ago. Here's some real numbers for today. Average home in Toronto is $914k.
https://www.zolo.ca/toronto-real-estate/trends
A quick mortgage search shows about 3.5%, historically low. Since we're being responsible and can't lock in for 30 years like the US, we can assume a buffer of 2%, or to be truly responsible something like the historical average of 7.5%.
With your typical responsible 20% down, 25 yr terms, and assuming a historically responsible mortgage to income ratio of 30%, here are the numbers for payment and income:
3.5%- 3645 / 12150/mth
5.5%- 4456 / 14853/mth
7.5%- 5340 / 17800/mth
To buy an average home, with any semblance of prudence you need an income of close to 200k a year.
Take a look at average incomes: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110019301
Top decile (2017) was 123k. To buy the average home, even assuming the most rosy terms possible and assuming they never change (20% down, 3% promotional rate, 30 year term), your payment is *still* 3k, so basically on par for someone at the cusp of the top 10% income earners.
Yes, we purchased our home ten years ago. Toronto is a large area, with quite a diverse offering of homes. Looking at averages skews things quite a bit as there are a lot of luxury houses and expensive homes located further down town that raise the average an awful lot.
(For example, there are four detached 3/4 bedroom 2/3 bath homes with OK sized yards within walking distance of my home currently listed between 599 and 688k.)
If you want to be truly responsible with the mortgage interest, you should assume a much larger down payment . . . rather than the bare minimum needed to avoid CMHC insurance. It's very easy to accumulate a huge down payment while making less than 200k a year. Our family has certainly never made even close to 200k a year.
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I don't agree. A public company that has issued stock but does not pay dividends isn't trying to make you (shareholder of two stocks) any direct monetary profit. They're doing what they think is best for their business, and using your money to do that. . . if they make good decisions it's likely to improve the value of your stock, but they don't give a crap about you or your personal profits. Which is in the same level of care that I'd expect from a mayor of a city . . . he wants to keep the city functioning smoothly, crime down, and property taxes to a level where he'll get re-elected . . . which is likely (in the long run) to increase the value of your home. He doesn't give a crap about the value of your home though.
It's not their business; it's the shareholders'. They have to give a certain amount of a crap about the shareholders because that's who can fire them. Just like any employee, top executives can get away with a certain amount of shenanigans, but at a certain point we will ask them to leave.
And they are trying to make you a direct monetary profit. If we the shareholders collectively thought that the company didn't have any good reason to retain earnings, we'd demand they all be paid out as dividends. The money in the company's account belongs to the shareholders, and just because we are collectively fine with the company holding on to it doesn't make that any different.
If we just agree to state that the primary residence is an investment but a terrible one compared to the alternatives, will that make everyone happy?
I'm standing by my guns. A primary residence is not an investment. The argument is semantics to some extent, but semantics effects the way people think which effects the way people act. Semantics can have real-world consequences. People equating unsustainable rises in house prices with sustainable rises in the value of growing companies is one of the main causes of the housing bubble a decade ago. Making some kind of clear linguistic distinction between the two is important to keep us from repeating history.
I do consider my 'Home' as an investment.
My ‘Home’ is a long-term investment in a commodity (like gold) that hedges me against rises in mortgage interest rates, rental increases, salary increases, price fluctuations, rising material costs, and location. I threw salary increases because I believe there is a correlation in the % that individuals earn to what can be afforded by mortgage or rent. US salaries have slowly been on the rise. Mortgage interest rates have been historically low.
It may NOT be a better investment than the stock market or another Vanguard fund. However, I did have to live somewhere. Because of that I made the best choice for me depending on my location and monthly expenses of living in a ‘Home’. I personally believe that I came out ahead of a renter because I have equity in something that has a financial value if I go to sell the ‘Home’.
Gold isn't an investment either; it's an asset.
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Suppose my neighbor and I each buy an identical house on the same street for the same price. Only then we learn that we're schmoes and we wasted our money. Instead, we decide to rent each other our houses for identical rents. Now we're investors! Clearly there are tax consequences to this strategy but they seem to be largely offsetting.
This seems to be the argument that is being made here. Am I getting something wrong?
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Suppose my neighbor and I each buy an identical house on the same street for the same price. Only then we learn that we're schmoes and we wasted our money. Instead, we decide to rent each other our houses for identical rents. Now we're investors! Clearly there are tax consequences to this strategy but they seem to be largely offsetting.
This seems to be the argument that is being made here. Am I getting something wrong?
Well, I guess that they would technically be investors, but that sounds like it would fall under the category of bad investors. This sounds kind of similar to somebody with 0 net worth going and taking out a loan then investing it. They became an investor, but it may not have been the best idea.
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I do consider my 'Home' as an investment.
My ‘Home’ is a long-term investment in a commodity (like gold)....
Gold isn't an investment either; it's an asset.
There is no logic in stating gold is not an investment it's ONLY an asset. GOLD is an investment. A quick search for ‘Invest in Gold’ will result in millions of sites. Gold is a precious metal whereas even currency paper-based money has shown by every civilization in the past to become worthless. Gold is often a way to invest against inflation and the uncertainty of wars.
The definitions online vary but an investment is •a thing that is worth buying because it MAY be profitable or useful in the future. (Oxford Dictionary)
As a homeowner, I purchased a home with the hope that it becomes profitable and if I go to sell it in the future my hope is that the home appreciates in value. Having a home presents MANY additional investment paths.
For one, it has helped me borrow hundreds of thousands of dollars from the bank as I have more leverage in that investment. For two, it has increase by buying power. For three, it has increased my credit score (810+). For four, it has fixed my cost of living. For five, it has deeded me property that no one else owns.
Synonyms searches online to investments results in assets… Synonyms searches for asset online results in investment. It is not my fault that your definition of assets doesn’t equate to investments.
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I do consider my 'Home' as an investment.
My ‘Home’ is a long-term investment in a commodity (like gold)....
Gold isn't an investment either; it's an asset.
There is no logic in stating gold is not an investment it's ONLY an asset. GOLD is an investment. A quick search for ‘Invest in Gold’ will result in millions of sites. Gold is a precious metal whereas even currency paper-based money has shown by every civilization in the past to become worthless. Gold is often a way to invest against inflation and the uncertainty of wars.
The definitions online vary but an investment is •a thing that is worth buying because it MAY be profitable or useful in the future. (Oxford Dictionary)
As a homeowner, I purchased a home with the hope that it becomes profitable and if I go to sell it in the future my hope is that the home appreciates in value. Having a home presents MANY additional investment paths.
For one, it has helped me borrow hundreds of thousands of dollars from the bank as I have more leverage in that investment. For two, it has increase by buying power. For three, it has increased my credit score (810+). For four, it has fixed my cost of living. For five, it has deeded me property that no one else owns.
Synonyms searches online to investments results in assets… Synonyms searches for asset online results in investment. It is not my fault that your definition of assets doesn’t equate to investments.
Yes, gold is an asset that has been good at holding its value. However, it does not produce any kind of revenue stream or profit from some kind of value added. If you want to safely store value, it's good for that. If you want to make money off of it, you're just hoping somebody else will pay more for the same exact thing you bought. "Invest in Gold" is just better marketing than "Store value in gold."
From Wiktionary:
"(finance) A placement of capital in expectation of deriving income or profit from its use or appreciation."
You could say that you're investing in gold or real estate because you expect it to appreciate. That's just based on hope, and nothing real, though. If there's nothing to actually driving any appreciation like reinvestment, renovation, R&D, etc., there shouldn't be any expectation of appreciation. If there's no realistic expectation of appreciation, it's not an investment.
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You believe that there should be no realistic expectation of appreciation for real estate/property? Historically, I'd say that this is usually wrong.
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Historically long term home price appreciation in the US is similar to inflation (3ish percent). Correct me if im wrong but if your costs of ownership (interest, tax, insurance, maintenance, upgrades, etc) are more that there should be no realistic expectation for real estate appreciation. However these are macro trends and the expert house pickers here on the MMM forum living in special cities with spectacular growth should have no reason to think that their home price appreciation wont be forever spectacular. Unfortunately i'm not special so im not expecting a return from my housing expenses, just savings in the form of very non-liquid equity and a nice place to call home with no landlords to deal with. Fortunately there are other investments with better long term track records
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You believe that there should be no realistic expectation of appreciation for real estate/property? Historically, I'd say that this is usually wrong.
You're in Toronto? Take a trip to Buffalo. It once had a bright future like Toronto.
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Historically long term home price appreciation in the US is similar to inflation (3ish percent). Correct me if im wrong but if your costs of ownership (interest, tax, insurance, maintenance, upgrades, etc) are more that there should be no realistic expectation for real estate appreciation. However these are macro trends and the expert house pickers here on the MMM forum living in special cities with spectacular growth should have no reason to think that their home price appreciation wont be forever spectacular. Unfortunately i'm not special so im not expecting a return from my housing expenses, just savings in the form of very non-liquid equity and a nice place to call home with no landlords to deal with. Fortunately there are other investments with better long term track records
Assumption - Cost of home ownership is correlated with the price of your home at the rate of inflation. Let's look at that for a minute.
If I own a 10 year old 1800 square foot home in the middle of nowhere that I bought for 60,000$, my costs of home ownership should be about 1,800$ a year. Seems a bit low, but OK.
If I own a 10 year old 1800 square foot home near downtown Las Angeles that I bought for 2 million dollars, my costs of home ownership should be 60,000$ a year? Wait . . . what? How the fuck am I spending 33 times as much maintaining exactly the same home?
Obviously there is something badly wrong with this assumption.
Now, I'm a pretty fancy guy. I enjoy having a roof over my head rather than living in a cardboard box in the alley . . . so would need to spend money on rent if I didn't own my home. Rent isn't cheap in this city (the average cost of renting a one bedroom apartment in Toronto is more than 27k a year - https://www.blogto.com/real-estate-toronto/2018/12/average-cost-one-bedroom-rental-toronto-hits-2260/).
Even assuming that I was just as happy with a 1 bedroom apartment as I am with a whole house, and ignoring the money that my solar panels reliably generate thousands of dollars each year, and ignoring the fact that I could easily rent out a room in my home (apparently for thousands more), I still don't spend remotely close to 27 grand a year maintaining our home . . . so I'm still coming out way ahead with my terrible non-investment. Throw an extra 3% a year on there and that sounds alright to me.
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Wow, your examples are extremes.
Where can you buy a 10 year old 1800 square foot home for $60k?
Where does $2M only get you 1800 sq. feet?
Okay, im sure you can find examples of each somewhere if you look hard enough but these are hardly typical situations!
The problem is that your extrapolating your experiences in toronto onto the rest of the continent (i cant say the US anymore). Im talking about macro trends in the US, the 3rd most populated country in the world, and your counterargument is that this cant be true because of whats happening in my neighborhood in toronto. And have you thought about what home prices would be in toronto if they continued at current rates of appreciation. I mean, anything is possible, toronto could become the most expensive city in the world, is that your point?
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not black and white. it's a scale.
investment property eg. 4plex > home > rental unit.
before the trump tax changes, mortgage interest was tax deductible, rent was not. This makes a huge difference when your marginal tax rate was 25% fed + 9% California state = 34%.
depends on price. in 2015, mortgages were actually cheaper than, here were the real life numbers i was looking at for a single family home. i could choose to pay $3100 rent, or have a $3100 mortgage.
https://www.mortgagecalculator.org/?q=AjQrD-4KQ
600k house now worth 950k. approx 100k down payment. approximate 350% rate of return on the 100k down payment over 4 years, much better than index funds. Also about 25k/year in intrerest + property tax. that deduction is worth 8.5k. so true mortgage cost was $2370/month. vs paying $3100 rent.
Now let’s jump into additional benefits. I can sell if i want, and 500k of profit is zero tax for married couples. I can also equity tap the house if I want money out. You can’t do this with with the small dollar index funds. If the property was investment, then selling would trigger taxable event. However, i can still refinance or equity tap it without triggering a sale, no taxes on appreciation. This is what wealthy people do to not pay taxes. Elon Musk isn’t selling his equity which would be a taxable event, he’s borrowing money against it to build his next company.
Real estate is subsidized in the US with overly generous tax breaks, and government backed low % loans.
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Wow, your examples are extremes.
Where can you buy a 10 year old 1800 square foot home for $60k?
Where does $2M only get you 1800 sq. feet?
Okay, im sure you can find examples of each somewhere if you look hard enough but these are hardly typical situations!
Granted. My point was simply that you can't say that cost of ownership is 3% of the price of a house. You need to actually look at what the home is, and how much of the home price is simply due to location. You can have two identical houses in different places worth vastly different amounts . . . but with comparable cost of upkeep. When comparing similar square footage and build quality (ie. like for like), the cheaper your home is the higher the percentage fees you will pay. The more expensive your home, the lower.
The problem is that your extrapolating your experiences in toronto onto the rest of the continent (i cant say the US anymore). Im talking about macro trends in the US, the 3rd most populated country in the world, and your counterargument is that this cant be true because of whats happening in my neighborhood in toronto. And have you thought about what home prices would be in toronto if they continued at current rates of appreciation. I mean, anything is possible, toronto could become the most expensive city in the world, is that your point?
Macro trends don't matter much when you as an individual live on a micro level. I'm giving examples from my life because I'm familiar with them. Maybe you're right . . . and there's nobody else in North America who should buy a house. But you appear to be ignoring a lot of factors (like the cost of rent, like the fact that a home owner can bring money in with their property in a variety of ways, etc.) to make home-ownership sound more expensive than it really is to come to that conclusion.
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Historically long term home price appreciation in the US is similar to inflation (3ish percent). Correct me if im wrong but if your costs of ownership (interest, tax, insurance, maintenance, upgrades, etc) are more that there should be no realistic expectation for real estate appreciation. However these are macro trends and the expert house pickers here on the MMM forum living in special cities with spectacular growth should have no reason to think that their home price appreciation wont be forever spectacular. Unfortunately i'm not special so im not expecting a return from my housing expenses, just savings in the form of very non-liquid equity and a nice place to call home with no landlords to deal with. Fortunately there are other investments with better long term track records
You keep mentioning the data but you have not provided any. Please show me where your 3 percent home appreciation comes from. Here is a quote from the federal reserve paper (the rate of return on everything) that I linked in post 122.
"In terms of total returns, residential real estate and equities have shown very similar and
high real total gains, on average about 7% per year. Housing outperformed equity before
WW2. Since WW2, equities have outperformed housing on average, but only at the cost of
much higher volatility and higher synchronicity with the business cycle."
Residential real estate and equities have shown very similar total gains yet only equities are an investment (unless you rent your residential real estate to someone else). Yeah right. Read the paper and get back to me.
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lots of versions of this data all over the web:
http://visualizingeconomics.com/blog/2011/03/23/real-vs-nominal-housing-prices-united-states1890-2010
For background and explanation from a reliable source you could check out some of Shillers peer reviewed papers:
http://www.econ.yale.edu/~shiller/publications.htm
I posted a search result to a dozen or so articles with this info a few pages ago.
I checked out the "real return of everything" paper. Its actually attempting to calculate a rate of return (including expenses) not home price appreciation. Some good notes on the real estate returns numbers in the paper here: https://www.mymoneyblog.com/long-term-returns-residential-real-estate-vs-stocks.html The paper uses a different method for calculatoring home price appreciation than Shiller. Both use an index to account for changes in house quality. Noone uses median home prices like you see in your local paper since houses have tended to get larger and better over time so you end up measuring the change in home quality not the change in price of the same home.
Ill admit that I was surprised by the results in the paper. Home price returns were higher than I would have thought. The thing is though, they are saying that real estate returns are about the same as equities (stocks) but the amount of effort that goes into investing in real estate and stocks is not the same. I think we can all agree that it is far easier to manage stock investments than real estate and you can do it from anywhere. The paper does not take into account anything like management fees. So, given the choice of hitting the buy button from anywhere in the world every so often (stocks) and dealingf with all that goes along with real estate for the same returns which would you choose? Volatility is higher for stocks and this is the only advantage I can see to real estate.
I never said noone should own a home. I own two of them. There are lots of reasons to own a home even if we dont think that it is the best investment. We should have realistic expectations about home price appreciation and real returns.
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not black and white. it's a scale.
investment property eg. 4plex > home > rental unit.
before the trump tax changes, mortgage interest was tax deductible, rent was not. This makes a huge difference when your marginal tax rate was 25% fed + 9% California state = 34%.
depends on price. in 2015, mortgages were actually cheaper than, here were the real life numbers i was looking at for a single family home. i could choose to pay $3100 rent, or have a $3100 mortgage.
https://www.mortgagecalculator.org/?q=AjQrD-4KQ
600k house now worth 950k. approx 100k down payment. approximate 350% rate of return on the 100k down payment over 4 years, much better than index funds. Also about 25k/year in intrerest + property tax. that deduction is worth 8.5k. so true mortgage cost was $2370/month. vs paying $3100 rent.
Now let’s jump into additional benefits. I can sell if i want, and 500k of profit is zero tax for married couples. I can also equity tap the house if I want money out. You can’t do this with with the small dollar index funds. If the property was investment, then selling would trigger taxable event. However, i can still refinance or equity tap it without triggering a sale, no taxes on appreciation. This is what wealthy people do to not pay taxes. Elon Musk isn’t selling his equity which would be a taxable event, he’s borrowing money against it to build his next company.
Real estate is subsidized in the US with overly generous tax breaks, and government backed low % loans.
the opportunity cost of your 100k down payment is your biggest housing expense and you didnt account for it, nor are you accounting for all the other expenses that are included in the rental payment. Transaction costs to sell are 7%. Owning your own home has still been a wise decision for you but not nearly as good as you make it sound in this oversimplified description and your home is heavily leveraged so if there is a downturn in the market you are at risk of losing a lot of money. We havent even started to talk about disadvantages like the fact that you cant easily move for a higher paying job. Still a good deal for you all things considered but mostly because of luck with the home price appreciation. For christs sakes its not as simple as comparing your PITI payment to monthly rent for similar house. Mortgage interest is still tax deductible, the standard deduction is just higher. state and local tax deduction was changed to be capped at 10k to punish those who didn't vote for the current president.
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Your statement is very wrong.
This is not real example of what I was going to buy. Bought something else instead. Those 600 k properties really are 950 now.
Actually, I under sold it, because principal doesn't count as a cost but growing equity.
After Trump tax changes , Prop tax is less tax deductible because incomes required to buy the houses typically pay close to 10k in state income tax anyeay
I did account for 100k down payment, it turned in to 350k because or house appreciation over 4 years.
Mortgage interest is still there but much less now. U used to get itemized deductions plus personal exemption, now u lose personal exp and it was moved in to a larger stand deduction. U have to choose now between stand and itemized.
Rent vs mortgage of similar monthly were not even close for these reason. All the buy vs rent calcs used to show this, hope they got updated for 2019. For my income bracket, 2 dollar in mortgage cost the same as $1 in rent In the 2015 calculators
If I get another job, I don't sell , I landlord and rent it, the rent somewhere else. No more closing costs. If I need money out, equity or refin.
80 percent is not very leveraged on a home at low interest rates. I wish I could borrow 1m at 4 percent to dump in to index funds.
Rent is a huge risk, u have no insurance vs rising rent, egs apartment rents doubled over 5 years after recession in my area. U have to pay moving costs at the whims of your landlord.
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Gold is no more an investment than cash is. It's just a different value store. If you convert US$ to UK pounds or Euros, would you say that's an investment? I would not.
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Ill admit that I was surprised by the results in the paper. Home price returns were higher than I would have thought. The thing is though, they are saying that real estate returns are about the same as equities (stocks) but the amount of effort that goes into investing in real estate and stocks is not the same. I think we can all agree that it is far easier to manage stock investments than real estate and you can do it from anywhere. The paper does not take into account anything like management fees. So, given the choice of hitting the buy button from anywhere in the world every so often (stocks) and dealingf with all that goes along with real estate for the same returns which would you choose? Volatility is higher for stocks and this is the only advantage I can see to real estate.
I never said noone should own a home. I own two of them. There are lots of reasons to own a home even if we dont think that it is the best investment. We should have realistic expectations about home price appreciation and real returns.
I agree that it can be easy to manage equities if you buy index funds, which is what I would recommend. It can also be a lot of work if you are analyzing individual securities. Many people pay professionals to do this work and manage their equities. However this has nothing to do with what we are talking about here which is whether or not a home is an investment.
Your argument about management fees only applies to rental properties. Most people don't need someone to manage their primary residence. You might be able to buy stocks from anywhere in the world but it's pretty easy to manage your primary residence from home because that's where you live. Earlier in this thread GuitarStv has shown that home maintenance doesn't have to be the onerous task that some here are making it out to be. After all this is the MMM forum where DIY and side hustle are praised.
I do agree with you about lower volatility being an advantage of real estate. Risk adjusted returns are something that all investors should take into account. In my opinion real estate can be a great way to diversify an investment portfolio. It really doesn't matter who the tenant is. It could be a stranger or it could be yourself.
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Ill admit that I was surprised by the results in the paper. Home price returns were higher than I would have thought. The thing is though, they are saying that real estate returns are about the same as equities (stocks) but the amount of effort that goes into investing in real estate and stocks is not the same. I think we can all agree that it is far easier to manage stock investments than real estate and you can do it from anywhere. The paper does not take into account anything like management fees. So, given the choice of hitting the buy button from anywhere in the world every so often (stocks) and dealingf with all that goes along with real estate for the same returns which would you choose? Volatility is higher for stocks and this is the only advantage I can see to real estate.
I never said noone should own a home. I own two of them. There are lots of reasons to own a home even if we dont think that it is the best investment. We should have realistic expectations about home price appreciation and real returns.
I agree that it can be easy to manage equities if you buy index funds, which is what I would recommend. It can also be a lot of work if you are analyzing individual securities. Many people pay professionals to do this work and manage their equities. However this has nothing to do with what we are talking about here which is whether or not a home is an investment.
Your argument about management fees only applies to rental properties. Most people don't need someone to manage their primary residence. You might be able to buy stocks from anywhere in the world but it's pretty easy to manage your primary residence from home because that's where you live. Earlier in this thread GuitarStv has shown that home maintenance doesn't have to be the onerous task that some here are making it out to be. After all this is the MMM forum where DIY and side hustle are praised.
I do agree with you about lower volatility being an advantage of real estate. Risk adjusted returns are something that all investors should take into account. In my opinion real estate can be a great way to diversify an investment portfolio. It really doesn't matter who the tenant is. It could be a stranger or it could be yourself.
Actually, if I understand it correctly the returns of everything paper is using rents (either imputed or collected) + home price appreciation minus some basic expenses to calculate the "rate of return" for housing in. Shillers data on home price appreciation is right and they say so in the paper, appreciation is about equal to inflation (3ish percent). The rate of return paper is saying that if you add in rental income OR imputed rent (the amount a homeowner would have spend on rent if they did not own) the returns and subtract out some expenses the rate of return is 7ish percent. It is an interesting finding and one that everyone who owns real estate should consider. Rental management fees are not included in the analysis but basic maintenance is.
I would never invest in individual stocks unless I were an expert in the industry and had intimate knowledge of the company. Investment managers/advisors charge considerably less for their services than rental real estate property managers. True, that you can do it all yourself, and I do and I enjoy a lot of it, but I do recognize that it is work. I don't really care about the semantics, my contention since page 2 of this thread has been that housing is'nt a great investment compared to the alternatives and your paper just reiterated that for me. I do think diversification in real estate is good, unfortunately as the rate of return paper points out it is hard, costly, or impossible to buy an "index" or slice of the pie for US housing. Most home "investors" overall portfolio simply becomes overweight in their house, city, area due to the nature of real estate. Also, for most real estate "investors" the trump corporate tax cuts have made this "investment" less attractive.
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Actually, if I understand it correctly the returns of everything paper is using rents (either imputed or collected) + home price appreciation minus some basic expenses to calculate the "rate of return" for housing in. Shillers data on home price appreciation is right and they say so in the paper, appreciation is about equal to inflation (3ish percent). The rate of return paper is saying that if you add in rental income OR imputed rent (the amount a homeowner would have spend on rent if they did not own) the returns and subtract out some expenses the rate of return is 7ish percent. It is an interesting finding and one that everyone who owns real estate should consider. Rental management fees are not included in the analysis but basic maintenance is.
I would never invest in individual stocks unless I were an expert in the industry and had intimate knowledge of the company. Investment managers/advisors charge considerably less for their services than rental real estate property managers. True, that you can do it all yourself, and I do and I enjoy a lot of it, but I do recognize that it is work. I don't really care about the semantics, my contention since page 2 of this thread has been that housing is'nt a great investment compared to the alternatives and your paper just reiterated that for me. I do think diversification in real estate is good, unfortunately as the rate of return paper points out it is hard, costly, or impossible to buy an "index" or slice of the pie for US housing. Most home "investors" overall portfolio simply becomes overweight in their house, city, area due to the nature of real estate. Also, for most real estate "investors" the trump corporate tax cuts have made this "investment" less attractive.
I largely agree with you. I would like to point out though that by saying "housing is'nt a great investment compared to the alternatives" you are admitting that it is an investment. That is what this whole thread is about.
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Actually, if I understand it correctly the returns of everything paper is using rents (either imputed or collected) + home price appreciation minus some basic expenses to calculate the "rate of return" for housing in. Shillers data on home price appreciation is right and they say so in the paper, appreciation is about equal to inflation (3ish percent). The rate of return paper is saying that if you add in rental income OR imputed rent (the amount a homeowner would have spend on rent if they did not own) the returns and subtract out some expenses the rate of return is 7ish percent. It is an interesting finding and one that everyone who owns real estate should consider. Rental management fees are not included in the analysis but basic maintenance is.
I would never invest in individual stocks unless I were an expert in the industry and had intimate knowledge of the company. Investment managers/advisors charge considerably less for their services than rental real estate property managers. True, that you can do it all yourself, and I do and I enjoy a lot of it, but I do recognize that it is work. I don't really care about the semantics, my contention since page 2 of this thread has been that housing is'nt a great investment compared to the alternatives and your paper just reiterated that for me. I do think diversification in real estate is good, unfortunately as the rate of return paper points out it is hard, costly, or impossible to buy an "index" or slice of the pie for US housing. Most home "investors" overall portfolio simply becomes overweight in their house, city, area due to the nature of real estate. Also, for most real estate "investors" the trump corporate tax cuts have made this "investment" less attractive.
I largely agree with you. I would like to point out though that by saying "housing is'nt a great investment compared to the alternatives" you are admitting that it is an investment. That is what this whole thread is about.
As we've been discussing all along it depends on your definition of an investment. Im not really interested in the semantics. I have a limited amount of money to invest and need to choose the best investment for me and my situation. I said on earlier in this thread that a primary residence is an investment but not a very good one compared to the alternatives. Also, while the return of everything paper shows decent returns from housing they are very hard for the investor to realize for many of the reasons we've discussed in this thread. All of these reasons make it a poor investment compared to the alternatives to me. Someone said they consider their shoes an investment because you use them to walk to work, I cant really argue against that.
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Actually, if I understand it correctly the returns of everything paper is using rents (either imputed or collected) + home price appreciation minus some basic expenses to calculate the "rate of return" for housing in. Shillers data on home price appreciation is right and they say so in the paper, appreciation is about equal to inflation (3ish percent). The rate of return paper is saying that if you add in rental income OR imputed rent (the amount a homeowner would have spend on rent if they did not own) the returns and subtract out some expenses the rate of return is 7ish percent. It is an interesting finding and one that everyone who owns real estate should consider. Rental management fees are not included in the analysis but basic maintenance is.
I would never invest in individual stocks unless I were an expert in the industry and had intimate knowledge of the company. Investment managers/advisors charge considerably less for their services than rental real estate property managers. True, that you can do it all yourself, and I do and I enjoy a lot of it, but I do recognize that it is work. I don't really care about the semantics, my contention since page 2 of this thread has been that housing is'nt a great investment compared to the alternatives and your paper just reiterated that for me. I do think diversification in real estate is good, unfortunately as the rate of return paper points out it is hard, costly, or impossible to buy an "index" or slice of the pie for US housing. Most home "investors" overall portfolio simply becomes overweight in their house, city, area due to the nature of real estate. Also, for most real estate "investors" the trump corporate tax cuts have made this "investment" less attractive.
I largely agree with you. I would like to point out though that by saying "housing is'nt a great investment compared to the alternatives" you are admitting that it is an investment. That is what this whole thread is about.
As we've been discussing all along it depends on your definition of an investment. Im not really interested in the semantics. I have a limited amount of money to invest and need to choose the best investment for me and my situation. I said on earlier in this thread that a primary residence is an investment but not a very good one compared to the alternatives. Also, while the return of everything paper shows decent returns from housing they are very hard for the investor to realize for many of the reasons we've discussed in this thread. All of these reasons make it a poor investment compared to the alternatives to me. Someone said they consider their shoes an investment because you use them to walk to work, I cant really argue against that.
real estate is a way better investment than index funds if you time is worth $500/hr or less. there is alot of work and sweat equity involved in real estate. unlike index funds, you can beat the market since you're not competing with buffet or computer trading. when you have to invest a billion, researching 2million individual houses is way too much work.
i've already shown this in a real world example
100k down payment to buy 600k house. appreciates 7%. borrow money at 4%. you get to make 3% spread on the 500k difference. you pay maintenance, and management; but you also get about 32k/year in rent - 1000 maintenance - your time in management. that's effectively a dividend. -1.25% property tax. the mortgage interest and property tax used to be full tax deductible. you don't need to pay taxes whe you cash out via refinance or equity lines. Index funds are not even remotely competitive. you can sell your primary and 500k gains are tax free. if it's an investment property, you can 1031 exchange to defer paying cap gain taxes.
In real estate, you can have your cake and eat it too. it's now about what assets you own, it's what you control. where else can you keep all the gains for an asset while only having 10-20% cash = skin in the game for it.
the key is, as i've said before, the government subsidized 4% large loan + tax breaks for real estate. Since 2017, they've reduced the tax benefits which I agree on.
making mortgage outside of principal tax deductible while rent is not, creates a huge divide between people able to buy a house and not able.
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the data dont show any kind of evidence that you should lead you to expect 7% appreciation for home prices. read the last few posts from Boh and I.
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64% of americans own their own home: https://www.census.gov/housing/hvs/files/currenthvspress.pdf
88% of americans take the standard deduction: https://www.cnbc.com/2019/02/26/6-tax-breaks-youll-miss-on-your-2018-return.html
In my experience talking with homeowners, most dont do their own taxes and dont even know if they itemize or not. But 99% of people talk about the great tax breaks from owning a home!
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64% of americans own their own home: https://www.census.gov/housing/hvs/files/currenthvspress.pdf
88% of americans take the standard deduction: https://www.cnbc.com/2019/02/26/6-tax-breaks-youll-miss-on-your-2018-return.html
In my experience talking with homeowners, most dont do their own taxes and dont even know if they itemize or not. But 99% of people talk about the great tax breaks from owning a home!
exactly, your average competition in real estate is an average american with no experience and not a lot of time to research. very beatable. your average competition in stock trading in a computer and mathematical analysis built by a team of crack MIT scientists, not odds i will take.
you can't make blanket statements and generalizations like you have, you hve to due diligence and choose carefully. buying a house in 2010 was a no brainer, couldn't lose. these days, it's a lot worse of an investment; but your gotta run your own numbers based on your brackets vs comparable calcs.. they ahve buy vs rent calculators at the least.
many people don't understand the math behind real estate and their taxes, but they can follow the herd to see how rich people got off their homes. if you don't see how real estate is a good gamble = investment depending on your situation, then you dont understand the math or are ignoring it.
it's not what you don't know it's what you know that just ain't so
the real world i example, 150k/year income, i gave 600, now 950 over 4 years is 12% appreciation. 100k down turned in to 350k+ in equity (origin payments paying loan down over 48 months). I did something even more aggressive and now gained 1.3m in net worth over the 6 years off a 150-175k w2 (average out from bonuses, rsus, etc).
don't wnt to downplay what it took to do it. 100 hour weeks of brutal awful sheer determination and stress and made lots of mistakes.
san fran and san mateo areas have apperciated 12% /year from 2011-2018. united states on the whole, 6% a year. 1.12^7 = 2.21 = 121% appreciation rate.
source. https://www.bayareamarketreports.com/trend/bay-area-market-survey
i don't expect that rate to continue, but neither stock market.
I've given you guys enough free hints. I spent 1000s of hours learning the tricks of the trade.
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the only thing i agree with you on is the "100 hour weeks of brutal awful sheer determination and stress" and "1000s of hours learning the tricks of the trade".
Believe it or not ive BTDT. My goal is not to become filthy rich, it is to spend as much time as possible doing the things I enjoy while Im healthy enough to enjoy them.
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the only thing i agree with you on is the "100 hour weeks of brutal awful sheer determination and stress" and "1000s of hours learning the tricks of the trade".
Believe it or not ive BTDT. My goal is not to become filthy rich, it is to spend as much time as possible doing the things I enjoy while Im healthy enough to enjoy them.
nothing wrong with that. but don't assume false equivalence of our knowledge base when one of us has outspent the other 10 to 1 on this subject studying it.
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Very interesting wgrdle, I really am impressed with your commanding knowledge of the subject. Maybe you can sell your secret sauce to wanna be RE investors on the side...
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Try Birmingham, Cleveland, Detroit, rural Nebraska, etc. They were once places that had a really bright future, too.
I just got busy for a couple of weeks and came to find out that rural Nebraska had a really bright future. When was that and in what part of rural Nebraska?
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Try Birmingham, Cleveland, Detroit, rural Nebraska, etc. They were once places that had a really bright future, too.
I just got busy for a couple of weeks and came to find out that rural Nebraska had a really bright future. When was that and in what part of rural Nebraska?
While I'm not dougeles, the case I'm aware of is immediately prior to the dustbowl and the Nebraska panhandle, respectively.
Huge numbers of folks moving in from the east coast (including from big cities) to buy up and plow up shortgrass prairie. Population of that part of the state is still lower today than it was in 1930.
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A sprinkler system, fertilizer, and an air compressor are all totally unnecessary when owning a home. I certainly don't need to use any of them . . . but I've landscaped our yard with plants that are adapted to the natural conditions of our yard. If you're trying to grow stuff that doesn't belong in your climate and don't want to keep wasting time/money, you should probably stop.
You are funny, very funny.
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Try Birmingham, Cleveland, Detroit, rural Nebraska, etc. They were once places that had a really bright future, too.
I just got busy for a couple of weeks and came to find out that rural Nebraska had a really bright future. When was that and in what part of rural Nebraska?
While I'm not dougeles, the case I'm aware of is immediately prior to the dustbowl and the Nebraska panhandle, respectively.
Huge numbers of folks moving in from the east coast (including from big cities) to buy up and plow up shortgrass prairie. Population of that part of the state is still lower today than it was in 1930.
Ditto. In the late 1800s and early 1900s people moved in to take advantage of new farm land and new railroad access. Without knowing about the upcoming dustbowl or loss of rural population to automation it would have looked like a very rosy future of a free new family farm that would produce wheat you could sell.
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Try Birmingham, Cleveland, Detroit, rural Nebraska, etc. They were once places that had a really bright future, too.
I just got busy for a couple of weeks and came to find out that rural Nebraska had a really bright future. When was that and in what part of rural Nebraska?
While I'm not dougeles, the case I'm aware of is immediately prior to the dustbowl and the Nebraska panhandle, respectively.
Huge numbers of folks moving in from the east coast (including from big cities) to buy up and plow up shortgrass prairie. Population of that part of the state is still lower today than it was in 1930.
Ditto. In the late 1800s and early 1900s people moved in to take advantage of new farm land and new railroad access. Without knowing about the upcoming dustbowl or loss of rural population to automation it would have looked like a very rosy future of a free new family farm that would produce wheat you could sell.
Well, good to know. For some reason I thought it should be something more recent.
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aadsf seems to be confusing rental RE with primary residences when he says "houses generate income". as far as ive been concerned this whole thread is about primary residences. Rental RE truly is an investment or maybe even more like a small business and deserves its own thread. This thread is about primary residences.
The same economics apply to both. Any house you live in can be rented to someone else, and vice versa. Real estate is real estate. You actually have significantly lower costs when you live in it yourself.
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A quick search for ‘Invest in Gold’ will result in millions of sites.
Well, who could argue with that!
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aadsf seems to be confusing rental RE with primary residences when he says "houses generate income". as far as ive been concerned this whole thread is about primary residences. Rental RE truly is an investment or maybe even more like a small business and deserves its own thread. This thread is about primary residences.
The same economics apply to both. Any house you live in can be rented to someone else, and vice versa. Real estate is real estate. You actually have significantly lower costs when you live in it yourself.
Not exactly. For one your return is cash; for the other your return is having a roof over your head. That makes the economics pretty different. Yes you can rent out your primary residence or move into your rental property. That just means it's a change in status.