Author Topic: Home is not an investment?  (Read 8267 times)

Mr. Boh

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Re: Home is not an investment?
« Reply #150 on: May 02, 2019, 09:56:42 AM »

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.

afox

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Re: Home is not an investment?
« Reply #151 on: May 02, 2019, 10:08:30 AM »

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.

wgrdle

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Re: Home is not an investment?
« Reply #152 on: May 02, 2019, 11:18:08 AM »

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. 


afox

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Re: Home is not an investment?
« Reply #153 on: May 02, 2019, 12:02:54 PM »
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.


afox

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Re: Home is not an investment?
« Reply #154 on: May 02, 2019, 01:12:05 PM »
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!

wgrdle

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Re: Home is not an investment?
« Reply #155 on: May 02, 2019, 01:55:47 PM »
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. 





« Last Edit: May 02, 2019, 02:01:28 PM by wgrdle »

afox

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Re: Home is not an investment?
« Reply #156 on: May 02, 2019, 02:35:48 PM »
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.




wgrdle

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Re: Home is not an investment?
« Reply #157 on: May 02, 2019, 03:33:14 PM »
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.

afox

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Re: Home is not an investment?
« Reply #158 on: May 02, 2019, 03:49:39 PM »
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...

ilsy

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Re: Home is not an investment?
« Reply #159 on: May 08, 2019, 11:26:16 PM »

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?

maizeman

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Re: Home is not an investment?
« Reply #160 on: May 09, 2019, 05:04:43 AM »

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.

ilsy

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Re: Home is not an investment?
« Reply #161 on: May 09, 2019, 06:59:33 AM »
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.

dougules

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Re: Home is not an investment?
« Reply #162 on: May 09, 2019, 11:23:16 AM »

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. 


ilsy

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Re: Home is not an investment?
« Reply #163 on: May 09, 2019, 03:41:57 PM »

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.

aasdfadsf

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Re: Home is not an investment?
« Reply #164 on: May 10, 2019, 11:19:56 PM »

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.
« Last Edit: May 10, 2019, 11:34:00 PM by aasdfadsf »

aasdfadsf

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Re: Home is not an investment?
« Reply #165 on: May 10, 2019, 11:30:42 PM »
A quick search for ‘Invest in Gold’ will result in millions of sites. 

Well, who could argue with that!

dougules

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Re: Home is not an investment?
« Reply #166 on: May 13, 2019, 10:15:35 AM »

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.