Author Topic: Is home ownership a suckers play?  (Read 26451 times)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #50 on: July 02, 2014, 11:05:23 AM »
As an investment, yes, home ownership is a suckers play.

It's also horrible as a way to tell time, but that's not really entirely relevant, either, is it?

Completely relevant because that's the general mindset of people (probably not most folks on this blog).  When we were looking for our first house a few years ago a guy I was working with at the time said excitedly once "Buying a home is an investment!"  Not sure why that memory stuck with me so strongly but I just remember thinking "No, it's not, it's a place to live."

Well we can get into making the right decisions for the wrong reasons, but the point is, whether it's an investment or not, it's a place to live.  Depending on several factors, you may end up with more money renting, or you may end up with more buying.  There are also, obviously, emotional factors besides the mathematical ones.

But even if that's the mindset of people, it doesn't make home ownership as an investment relevent.  The only relevant question is your opportunity cost.

What would you do if you didn't own?  Now compare those options against each other.

Comparing it against investing in, say, stocks, is irrelevant, because you still need a place to live.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

schimt

  • Bristles
  • ***
  • Posts: 308
  • Age: 34
  • Location: New Jersey
Re: Is home ownership a suckers play?
« Reply #51 on: July 02, 2014, 11:17:59 AM »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #52 on: July 02, 2014, 11:33:34 AM »
possibly a better out look on the topic

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I agree with Jim on a lot of stuff, but he's way off the mark on that one, for exactly the reason I posted in the post above yours.

Comparing it to another investment (like equities) it can look bad: the transaction fees, the illiquidity, etc.

So he builds a great case as to why it's a bad investment. 

Ultimately though, as Undecided pointed out, that's irrelevant. Your house is a horrible way to tell time compared to a watch, but why would we compare it in that metric?  We shouldn't be comparing a house as an investment, but as a place to live.  Emotionally, or mathematically.

It sometimes makes sense to rent.  It sometimes makes sense to buy.  Compare those options, and choose.  But saying it's a terrible investment .. who cares?  It may still be better mathematically versus the only other realistic option.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

brandino29

  • Bristles
  • ***
  • Posts: 323
Re: Is home ownership a suckers play?
« Reply #53 on: July 02, 2014, 02:04:29 PM »
possibly a better out look on the topic

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I enjoyed the article, and of course agree with a lot of the points, but it's a bit silly.  You could easily flip the argument and say: Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4382
  • Location: CT
Re: Is home ownership a suckers play?
« Reply #54 on: July 02, 2014, 02:07:48 PM »
possibly a better out look on the topic

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I enjoyed the article, and of course agree with a lot of the points, but it's a bit silly.  You could easily flip the argument and say: Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

And well that's the point. I used to think that your house is a terrible investment (still do if you're going to compare it to an investment), it's just the wrong comparison. It is an apples to oranges comparison. There is nothing I can think of that you can rightfully compare a house to except the alternatives to housing such as renting vs. buying vs. RVing or whatever. So no owning a house isn't a suckers play nor is it a terrible investment. It is just a possible choice amongst others that should be made cost effectively and within your values and what you value.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #55 on: July 02, 2014, 02:19:05 PM »
possibly a better out look on the topic

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I enjoyed the article, and of course agree with a lot of the points, but it's a bit silly.  You could easily flip the argument and say: Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

And well that's the point. I used to think that your house is a terrible investment (still do if you're going to compare it to an investment), it's just the wrong comparison. It is an apples to oranges comparison. There is nothing I can think of that you can rightfully compare a house to except the alternatives to housing such as renting vs. buying vs. RVing or whatever. So no owning a house isn't a suckers play nor is it a terrible investment. It is just a possible choice amongst others that should be made cost effectively and within your values and what you value.

Exactly.

We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

schimt

  • Bristles
  • ***
  • Posts: 308
  • Age: 34
  • Location: New Jersey
Re: Is home ownership a suckers play?
« Reply #56 on: July 02, 2014, 02:24:45 PM »
possibly a better out look on the topic

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

I agree with Jim on a lot of stuff, but he's way off the mark on that one, for exactly the reason I posted in the post above yours.

Comparing it to another investment (like equities) it can look bad: the transaction fees, the illiquidity, etc.

So he builds a great case as to why it's a bad investment. 

Ultimately though, as Undecided pointed out, that's irrelevant. Your house is a horrible way to tell time compared to a watch, but why would we compare it in that metric?  We shouldn't be comparing a house as an investment, but as a place to live.  Emotionally, or mathematically.

It sometimes makes sense to rent.  It sometimes makes sense to buy.  Compare those options, and choose.  But saying it's a terrible investment .. who cares?  It may still be better mathematically versus the only other realistic option.

Sorry arebelspy, i didn't reread Jim's artical when i posted that, but he agrees with your comment, as shown in this post that he wrote too, and is linked to in the bottom of the first one i sent. The first one primarily argues the fact that people grow up hearing the comment that buying a house is the best invetment you can make, i know i was always told that. He's not saying that buying a house is the wrong decision, it's just not a good investment as people seem to preach. Again, unless as others said, it is a good financial choice if the only way you will ever save money, is by paying a mortgage.

http://jlcollinsnh.com/2013/03/20/roots-v-wings-considering-home-ownership/

Roland of Gilead

  • Handlebar Stache
  • *****
  • Posts: 2107
Re: Is home ownership a suckers play?
« Reply #57 on: July 02, 2014, 03:55:10 PM »
Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

Seadrill would do.  Yield is around 11% which would give you $22,000 on a $200,000 investment.  $22,000 would get you a nice 2 bd apt. or small house rental at $1800 a month.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #58 on: July 02, 2014, 04:06:24 PM »
Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

Seadrill would do.  Yield is around 11% which would give you $22,000 on a $200,000 investment.  $22,000 would get you a nice 2 bd apt. or small house rental at $1800 a month.

I think you missed the point.

I want to sleep in the stock.  Not take the yield and get a different place, that's a separate question.

You just cover yourself in stock certificates, from what I understand.

Enron employees perfected the technique, I believe.

The point was that you can't sleep in stocks any more than you invest in a house.  They're for separate purposes.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Roland of Gilead

  • Handlebar Stache
  • *****
  • Posts: 2107
Re: Is home ownership a suckers play?
« Reply #59 on: July 02, 2014, 04:18:24 PM »
Find me a stock that will provide me a place to sleep every night or a stock that will keep me, my family, and my belongings safe, dry, and warm all year long.

Seadrill would do.  Yield is around 11% which would give you $22,000 on a $200,000 investment.  $22,000 would get you a nice 2 bd apt. or small house rental at $1800 a month.

I think you missed the point.

I want to sleep in the stock.  Not take the yield and get a different place, that's a separate question.

You just cover yourself in stock certificates, from what I understand.

Enron employees perfected the technique, I believe.

The point was that you can't sleep in stocks any more than you invest in a house.  They're for separate purposes.

I guess then you would need to buy a micro cap penny stock, get a controlling share, and appoint yourself to the board then make yourself a position there.   Get an office with a sofa and use the company washroom to bath.

I tend to agree though that a stock is not a home and a home is not a stock.  Perhaps the thread should not be in the investing category.

Spartana

  • Guest
Re: Is home ownership a suckers play?
« Reply #60 on: July 02, 2014, 08:51:18 PM »
I'm in the process of deciding if I want to rent or buy after I sell my current house this year. I personally love renting much better - the freedom to move, no maintenance, no worries, lock up and go -  and hate ownership and all the chores involved and expenses of even a paid for place. Plus I don't like having a lot of my cash tied up in a house. For me, I have found that the expenses of home ownership can be very high even with a paid for house. Costs to buy, to sell, to maintain and repair (plus the value of my time to work on the place), taxes, insurances, etc...  If I could rent forever I probably would. But am concerned about the  financial/inflationary aspects of long term renting as well as market fluxuations. Probably will rent for awhile and eventually buy again but am wondering if anyone has plans to just rent forever? I'm single with no kids so easy to live very small.
« Last Edit: July 02, 2014, 08:53:00 PM by Spartana »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #61 on: July 03, 2014, 01:56:04 AM »
I'm in the process of deciding if I want to rent or buy after I sell my current house this year.

So here's the thing.  You have two conflicting things, one which might make renting better, one which might make owning better:
For me, I have found that the expenses of home ownership can be very high even with a paid for house. Costs to buy, to sell, to maintain and repair (plus the value of my time to work on the place), taxes, insurances, etc... 
If I could rent forever I probably would. But am concerned about the  financial/inflationary aspects of long term renting as well as market fluxuations.

It's the case that sometimes one will be better financially, and sometimes the other, depending on what it costs to rent and what it costs to buy in the area in which you want to live.

Run the specific numbers.

A calculator like this may help: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

If it's close, maybe you let the emotional side tip it (which is to own for most people, or to rent for you, due to the flexibility).  But actually run the numbers for your area, don't just use a generic "it's expensive to own" or "rents go up with inflation but owning you lock in that price" -- see what it looks like under your various assumptions.

:)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

lano

  • 5 O'Clock Shadow
  • *
  • Posts: 25
Re: Is home ownership a suckers play?
« Reply #62 on: July 03, 2014, 05:59:19 AM »
The previous version of the NYTimes calculator was a bit less user friendly.  It kept some of the most important input fields, like return on investment, in collapsed hidden "advanced" fields. 

However it did have one important feature which the new version does not -- the previous version allowed you to pick the rent value.  And then, given all the inputs, and the rent value, it would give you the difference you could expect over time.

You can still sort of fake it in the new version, say by adjusting the home price to a rent value that you can actually get and then subtracting one total from the other manually.

But before it was easy and quite shocking at times to see difference -- especially for my area Brooklyn.

I agree with others in the past few posts -- the difference between the two is really just the difference between different ways of paying for housing. 

But in a lot areas, especially large cities, the difference is huge when you assume a rate of return on the difference of 10%.  The difference becomes insane with 15% to 20% rate of return.  (S&P annual rate of return for the past 5 years is approximately 17.5% now.)



 

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 2057
Re: Is home ownership a suckers play?
« Reply #63 on: July 03, 2014, 07:58:49 AM »
I'm in the process of deciding if I want to rent or buy after I sell my current house this year. I personally love renting much better - the freedom to move, no maintenance, no worries, lock up and go -  and hate ownership and all the chores involved and expenses of even a paid for place. Plus I don't like having a lot of my cash tied up in a house. For me, I have found that the expenses of home ownership can be very high even with a paid for house. Costs to buy, to sell, to maintain and repair (plus the value of my time to work on the place), taxes, insurances, etc...  If I could rent forever I probably would. But am concerned about the  financial/inflationary aspects of long term renting as well as market fluxuations. Probably will rent for awhile and eventually buy again but am wondering if anyone has plans to just rent forever? I'm single with no kids so easy to live very small.

You could always consider doing both: Rent a place yourself so you have the desired flexibility, and buy a house to rent out long term (or rent out your current home after you move). Then the rental house truly is an investment, you get some positive cash flow from it, and you get the tax advantages of being a landlord. You can outsource everything so you're not doing repairs or other maintenance chores. You'll always have that house as a hedge against inflation, and could move back into it if you ever find that rents become too expensive relative to home ownership. One day, if you don't take cash out along the way, you'll own it free and clear (or maybe you do already).

Spartana

  • Guest
Re: Is home ownership a suckers play?
« Reply #64 on: July 03, 2014, 11:17:13 AM »
I'm in the process of deciding if I want to rent or buy after I sell my current house this year.

So here's the thing.  You have two conflicting things, one which might make renting better, one which might make owning better:
For me, I have found that the expenses of home ownership can be very high even with a paid for house. Costs to buy, to sell, to maintain and repair (plus the value of my time to work on the place), taxes, insurances, etc... 
If I could rent forever I probably would. But am concerned about the  financial/inflationary aspects of long term renting as well as market fluxuations.

It's the case that sometimes one will be better financially, and sometimes the other, depending on what it costs to rent and what it costs to buy in the area in which you want to live.

Run the specific numbers.

A calculator like this may help: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

If it's close, maybe you let the emotional side tip it (which is to own for most people, or to rent for you, due to the flexibility).  But actually run the numbers for your area, don't just use a generic "it's expensive to own" or "rents go up with inflation but owning you lock in that price" -- see what it looks like under your various assumptions.

:)
Thanks! Of course it would help if I actually knew where I wanted to live (not here for sure). But you're right, the happiness factor should out weight the financial factor IMHO. So if renting forever makes me happier, then that's probably the route I'll go even if financially it isn't the wisest move (will have to calculate the numbers once I see where I want to live permanently - if that ever happens I do like to move around). I do have a government pension of $1400/month that has a 3% COLA every year so am not as dependent on how my stash does in the market compared to others here. So if I can keep my total housing costs (rent or buy) within or under that amount I can get by. I do worry that I'd be priced out of the rental market if rent prices over a 30 or 40 year period (or 50 if I lived that long) rose as much in the future as they have in the past. I remember my parents telling me that when they bought their first house in 1964ish, they were really hesitant because their rent was $80/month for a duplex and they would be taking on a mortgage of $150/month PITI on a house that cost $16K in coastal SoCal. That same duplex would now rent for over $2000/month and the houses value would be in the $500K range. Looking at those numbers make buying far exceed renting even if you include in all the extras. Makes you wonder what the next 40 years will be like.  Scary to think of renting long term from that perspective.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28263
  • Age: -999
  • Location: Seattle, WA
Re: Is home ownership a suckers play?
« Reply #65 on: July 03, 2014, 11:22:41 AM »
If financially it makes sense to buy, it may make sense to turn into a rental if you want to move, so you aren't "trapped," and then you have the hedge against rising rents of always being able to move back into it.

Of course, you may not want to deal with a rental property, but that's one way to own while still renting. :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Spartana

  • Guest
Re: Is home ownership a suckers play?
« Reply #66 on: July 03, 2014, 11:23:04 AM »
I'm in the process of deciding if I want to rent or buy after I sell my current house this year. I personally love renting much better - the freedom to move, no maintenance, no worries, lock up and go -  and hate ownership and all the chores involved and expenses of even a paid for place. Plus I don't like having a lot of my cash tied up in a house. For me, I have found that the expenses of home ownership can be very high even with a paid for house. Costs to buy, to sell, to maintain and repair (plus the value of my time to work on the place), taxes, insurances, etc...  If I could rent forever I probably would. But am concerned about the  financial/inflationary aspects of long term renting as well as market fluxuations. Probably will rent for awhile and eventually buy again but am wondering if anyone has plans to just rent forever? I'm single with no kids so easy to live very small.

You could always consider doing both: Rent a place yourself so you have the desired flexibility, and buy a house to rent out long term (or rent out your current home after you move). Then the rental house truly is an investment, you get some positive cash flow from it, and you get the tax advantages of being a landlord. You can outsource everything so you're not doing repairs or other maintenance chores. You'll always have that house as a hedge against inflation, and could move back into it if you ever find that rents become too expensive relative to home ownership. One day, if you don't take cash out along the way, you'll own it free and clear (or maybe you do already).
I had thought of that but I am not landlord material - too much of a worrywart. I do own it free and clear and it is very low cost to me but I like the freedom of being unattached to things and I know that isn't something I'd be interested in. Good financial strategy though as I'm in an expensive rental area so could make around $2500/month renting out the place..

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 2057
Re: Is home ownership a suckers play?
« Reply #67 on: July 03, 2014, 12:37:02 PM »
I'll relieve you of that worrisome home for $150k, and you'll finally be free to make the world your oyster! ;-)

Chuck

  • Bristles
  • ***
  • Posts: 411
  • Age: 32
  • Location: Northern VA
Re: Is home ownership a suckers play?
« Reply #68 on: July 03, 2014, 02:35:50 PM »
If you buy early enough in life to make clearing the mortgage a mid-life event you can save quite a bit of money. The trick is that you don't want to move. Or if you do, rent rather than sell.

Then of course you can transfer the property to your posterity, and generational wealth does it's thing.

For a short term play it's almost always a bad move, but if you play the long game I think it can be a wise choice.

Spartana

  • Guest
Re: Is home ownership a suckers play?
« Reply #69 on: July 03, 2014, 02:57:16 PM »
I'll relieve you of that worrisome home for $150k, and you'll finally be free to make the world your oyster! ;-)
Add another $400K to that and it's a deal :-)! I co-own with my sister so would have to give her half if I sold (or buy her out if I kept the place) so kind of makes haggling harder. Another thing, as Chuck pointed out, is most people want to leave their house (as part of their stash) to their heirs. Since I haven't got any heirs (it all goes to charity - or some young hot future DH I sink my cougar claws into who out lives me  :-)!) so being house rich and cash poor isn't something I'd like to do. But maybe selling and buying a MUCH less expensive, easy care place that I can rent for income (and live in when I want) and retaining a bulk of my "house-money" in cash would be the way to go. Sort of the best of both worlds.
 

Primm

  • Handlebar Stache
  • *****
  • Posts: 1320
  • Age: 51
  • Location: Australia
Re: Is home ownership a suckers play?
« Reply #70 on: July 03, 2014, 08:11:02 PM »
I just bought a house, and while I didn't go into the pros and cons very deeply my thoughts in the process were as follows.

I have to pay something for somewhere to live. That's just life. At the moment the actual dollar amount of my mortgage payment and what I would pay in rent is about the same.

In 30 years time, going on past rates, rent around here will be a lot higher. When I first left home about 30 years ago I was paying $85 a week for a house like the one I'm in. Now the standard rent around here is around the $300 mark. So that's a 250% increase. Which makes rent possibly somewhere in the $4,500 a month range in 30 years. Since I'm paying $1,300 a month at the moment, which like I said is set for life bar interest rate rises, even if I had to pay my mortgage for the rest of my life it becomes progressively cheaper in relation to rent to the point where it's, if not exactly negligible, at least really really cheap.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2065
  • Age: 41
  • Location: Pueblo West, CO
Re: Is home ownership a suckers play?
« Reply #71 on: July 04, 2014, 08:07:25 PM »
All real estate is local, so it depends. If you make an emotional decision about a house and call it an investment, I can see the caution.

Mr. Frugalwoods

  • Bristles
  • ***
  • Posts: 296
  • Location: Greater Boston Area
    • Frugalwoods
Re: Is home ownership a suckers play?
« Reply #72 on: July 05, 2014, 05:17:31 PM »
I made the decision to buy a house by evaluating it as a potential rental.  Since I felt confident it would cashflow from day one and I knew I'd be doing work on it over the years to improve it... it was a no-brainer decision.

Our long term plan is to use it as a rental, but it makes a nice house for us now as we are fixing it up.  Both a place to live and an investment!

However, if I was looking today in our neighborhood I probably wouldn't buy.  The rents don't support the valuations that sellers are getting.  Eventually that pendulum will swing back in the other direction.

malacca

  • Stubble
  • **
  • Posts: 244
  • Location: Malaysia!!!
Re: Is home ownership a suckers play?
« Reply #73 on: July 05, 2014, 11:33:47 PM »
It really depends on the area.

In some areas it is much cheaper to own than rent (and the other benefits of owning are high).

In expensive places like NYC or San Francisco it is probably better to rent than buy.

At the end of the day, there are intangibles to buying and renting.

Keep an open mind.


I myself, haven't rented since 2001. But I probably will rent again when I move to San Diego.


MgoSam

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Minnesota
Re: Is home ownership a suckers play?
« Reply #74 on: July 06, 2014, 01:28:31 AM »
Yeah, this is something that I am curious about. Right now I am renting a room in my friend's condo (includes utilities, garage space, and shared use of all living areas/kitchen) at $500/month. This is a fairly sweet deal especially as we both get along and this cuts my commute in half and I am starting to bike so that I can avoid driving to work. I was previously living with my parents and using the $500/month as an extra addition to my Vanguard investments.

I am looking for a place of my own, but I think much of it is having pride in my own place. This is a sweet arrangement thus far, and I know that my roommate is paying $300 in associate fees alone, that doesn't account for his mortgage and other expenses. These are expenses that I would have to pay for had I owned my own place. I am toying with staying here unless I find something far better. My roommate is single, if he gets married then I know that I will slowly be asked to find a new place. But the costs of home ownership don't seem like a worthy investment, the mortgage may be cheaper than rent, but to me that is still a ton of money stuck in one place, without much diversity. I would rather have my money in index funds and rent. Plus if I need to move this is far easier than trying to sell a house (esp in a down market).