Author Topic: Home is not an investment?  (Read 8326 times)

Telecaster

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Re: Home is not an investment?
« Reply #50 on: April 22, 2019, 01:52:26 PM »
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years my roof would need to be replaced, as well as water heater, furnace and AC, not to mention other items becoming outdated, like sprinkler system, driveway, windows, gutters, downspouts, garage door motor, back porch, bathrooms, kitchens.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.   

Papa bear

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Re: Home is not an investment?
« Reply #51 on: April 22, 2019, 08:03:56 PM »
If your personal home is an investment, itís 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 youíve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average.  Itís 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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Papa bear

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Re: Home is not an investment?
« Reply #52 on: April 22, 2019, 08:16:50 PM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 ďitís an investment because imputes rentĒ - 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.  Thatís 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, itís an asset that depreciates.

For most people with a mortgage, itís also a forced savings account that earns no interest.  Youíre 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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caleb

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Re: Home is not an investment?
« Reply #53 on: April 22, 2019, 09:31:29 PM »
If your personal home is an investment, itís 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 youíve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average.  Itís 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.

spartana

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Re: Home is not an investment?
« Reply #54 on: April 22, 2019, 10:47:13 PM »
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.
« Last Edit: April 22, 2019, 10:55:22 PM by spartana »

afox

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Re: Home is not an investment?
« Reply #55 on: April 22, 2019, 11:39:39 PM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 ďitís an investment because imputes rentĒ - 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.  Thatís 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, itís an asset that depreciates.

For most people with a mortgage, itís also a forced savings account that earns no interest.  Youíre 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.

Telecaster

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Re: Home is not an investment?
« Reply #56 on: April 22, 2019, 11:58:32 PM »
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. 

Papa bear

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Re: Home is not an investment?
« Reply #57 on: April 23, 2019, 06:46:34 AM »
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 donít pay storage or garage rental fees. But you didnít ďinvestĒ 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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Papa bear

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Re: Home is not an investment?
« Reply #58 on: April 23, 2019, 06:48:53 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 ďitís an investment because imputes rentĒ - 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.  Thatís 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, itís an asset that depreciates.

For most people with a mortgage, itís also a forced savings account that earns no interest.  Youíre 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 ďin the endĒ you would have an asset to draw upon.  If you have paid off your mortgage, it doesnít 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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Papa bear

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Re: Home is not an investment?
« Reply #59 on: April 23, 2019, 06:52:08 AM »
If your personal home is an investment, itís 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 youíve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average.  Itís 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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Papa bear

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Re: Home is not an investment?
« Reply #60 on: April 23, 2019, 07:06:30 AM »
If your personal home is an investment, itís 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 youíve actually been to any of those cities, but the cleveland area is seeing the same, if not more, appreciation than the average.  Itís 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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GuitarStv

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Re: Home is not an investment?
« Reply #61 on: April 23, 2019, 07:26:34 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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.

Papa bear

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Re: Home is not an investment?
« Reply #62 on: April 23, 2019, 07:53:00 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 doesnít 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 doesnít 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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GuitarStv

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Re: Home is not an investment?
« Reply #63 on: April 23, 2019, 08:00:16 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 doesnít 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 doesnít 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?

Papa bear

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Re: Home is not an investment?
« Reply #64 on: April 23, 2019, 08:28:15 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 doesnít 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 doesnít 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 canít be an investment or that you canít make boatloads of money off of it.  Iím a real estate investor and landlord!  Iím 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, itís not an investment. 

If you plan on improving and selling, renting bedrooms, moving and making it a rental, Airbnb the place while youíre on your month long vacations out of the country, then your intent was to make this an income producing asset, or an investment.

For posterityís 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, Iím not sure I want to leave.  Welp, there goes my ďinvestment.Ē   Iím 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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afox

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Re: Home is not an investment?
« Reply #65 on: April 23, 2019, 09:31:29 AM »
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.


affordablehousing

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Re: Home is not an investment?
« Reply #66 on: April 23, 2019, 10:29:11 AM »
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.

Jon Bon

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Re: Home is not an investment?
« Reply #67 on: April 23, 2019, 11:08:57 AM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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 doesnít 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 doesnít 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 canít be an investment or that you canít make boatloads of money off of it.  Iím a real estate investor and landlord!  Iím 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, itís not an investment. 

If you plan on improving and selling, renting bedrooms, moving and making it a rental, Airbnb the place while youíre on your month long vacations out of the country, then your intent was to make this an income producing asset, or an investment.

For posterityís 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, Iím not sure I want to leave.  Welp, there goes my ďinvestment.Ē   Iím 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.


GuitarStv

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Re: Home is not an investment?
« Reply #68 on: April 23, 2019, 11:25:03 AM »
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.

afox

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Re: Home is not an investment?
« Reply #69 on: April 23, 2019, 12:02:20 PM »
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?


ilsy

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Re: Home is not an investment?
« Reply #70 on: April 24, 2019, 01:36:09 AM »
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.

ilsy

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Re: Home is not an investment?
« Reply #71 on: April 24, 2019, 03:06:15 AM »
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?

GuitarStv

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Re: Home is not an investment?
« Reply #72 on: April 24, 2019, 07:01:49 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.

afox

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Re: Home is not an investment?
« Reply #73 on: April 24, 2019, 09:49:58 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.

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. 


afox

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Re: Home is not an investment?
« Reply #74 on: April 24, 2019, 10:02:00 AM »
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).

Seadog

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Re: Home is not an investment?
« Reply #75 on: April 26, 2019, 08:50:38 AM »
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.

GuitarStv

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Re: Home is not an investment?
« Reply #76 on: April 26, 2019, 09:14:49 AM »
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.

pudding

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Re: Home is not an investment?
« Reply #77 on: April 26, 2019, 09:35:20 AM »

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.
« Last Edit: April 26, 2019, 09:50:15 AM by pudding »

Jon Bon

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Re: Home is not an investment?
« Reply #78 on: April 26, 2019, 10:40:41 AM »
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

ixtap

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Re: Home is not an investment?
« Reply #79 on: April 26, 2019, 10:55:10 AM »
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.

Jon Bon

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Re: Home is not an investment?
« Reply #80 on: April 26, 2019, 12:00:47 PM »
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.




SotI

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Re: Home is not an investment?
« Reply #81 on: April 26, 2019, 12:37:06 PM »
If your personal home is an investment, itís 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.

dougules

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Re: Home is not an investment?
« Reply #82 on: April 26, 2019, 12:45:00 PM »
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)

GuitarStv

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Re: Home is not an investment?
« Reply #83 on: April 26, 2019, 01:48:26 PM »
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.

ixtap

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Re: Home is not an investment?
« Reply #84 on: April 26, 2019, 02:08:11 PM »
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?

GuitarStv

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Re: Home is not an investment?
« Reply #85 on: April 26, 2019, 02:34:02 PM »
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?

afox

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Re: Home is not an investment?
« Reply #86 on: April 26, 2019, 02:42:23 PM »
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.


dougules

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Re: Home is not an investment?
« Reply #87 on: April 26, 2019, 03:24:01 PM »
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. 

GuitarStv

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Re: Home is not an investment?
« Reply #88 on: April 26, 2019, 05:10:33 PM »
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.

Mr. Boh

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Re: Home is not an investment?
« Reply #89 on: April 26, 2019, 08:04:41 PM »
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?

ixtap

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Re: Home is not an investment?
« Reply #90 on: April 26, 2019, 08:06:21 PM »
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?

spartana

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Re: Home is not an investment?
« Reply #91 on: April 26, 2019, 08:23:07 PM »
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.
-

I was one of those people. Bought a 1950s original condition 1000 sf 3/2 house on an 8000 sf lot for under $200k mid-2000s in coastal SoCal. Last year that house...with no improvements just basic maintenance... sold for almost $600k and has sat vacant until today when a former neighbor sent me several photos of a giant bulldozer knocking it down. They are building a 2 story 4000 sf 7 bedroom/7 bath mcmansion plus a 2/2 800 sf ADU on the property.  Crazy stuff but the norm.around many parts of Calif.

ETA in my case it wouldn't have mattered at all how improved my house was. I could have had everything done under the sun and the sale value wouldn't have been different because at 1000 sf with 3 tiny bedrooms it was just too small for most people now. So the value was totally in.the land and the house didn't matter at all no matter how much money was thrown in on improvements and upgrading.

« Last Edit: April 29, 2019, 04:40:41 PM by spartana »

aasdfadsf

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Re: Home is not an investment?
« Reply #92 on: April 26, 2019, 10:18:32 PM »
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.

aasdfadsf

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Re: Home is not an investment?
« Reply #93 on: April 26, 2019, 10:52:06 PM »
As to the house is not an investment:

Your house is an asset that depreciates over time.  Itís 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.

Quote
As for the ďitís an investment because imputes rentĒ - 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.  Thatís 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.

Seadog

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Re: Home is not an investment?
« Reply #94 on: April 27, 2019, 05:23:29 AM »

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. 

afox

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Re: Home is not an investment?
« Reply #95 on: April 27, 2019, 07:30:58 AM »
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.




spartana

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Re: Home is not an investment?
« Reply #96 on: April 27, 2019, 08:38:01 AM »
^and the huge price increases are generally followed by big drops (corrections) that are pretty severe (2008 anyone? Maybe 2020?) rather than small dips and increases you generally see in the long term housing market often due to localized events. Overall they seem to keep up with inflation and if expenses aren't too much over the years you may turn a profit compared to renting and investing the difference. Also rental price increases  (sometimes over 10% annual rent increase in some areas) may make some areas just as  unaffordable as owning over the long term.

Question: if the small older house next to you was being razed and 2 houses (one a 2 story) with a total of 9 bedrooms and 9 bathrooms was being built  lot line to lot line, would that increase your house value or decrease it? My former neighbor who has a small old house like mine that was razed is freaked out about having that and thinking of selling but not sure if its better to wait until fancy behemoth is built or GTFO now. Eta will start a new thread on this.
« Last Edit: April 27, 2019, 08:47:41 AM by spartana »

talltexan

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Re: Home is not an investment?
« Reply #97 on: April 29, 2019, 09:41:56 AM »
Lurker here: thank you for the comments. I came here trying to cure myself of "house fever", and I think it's working.

GuitarStv

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Re: Home is not an investment?
« Reply #98 on: April 29, 2019, 10:08:24 AM »

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.

dougules

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Re: Home is not an investment?
« Reply #99 on: April 29, 2019, 10:24:21 AM »
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. 
« Last Edit: April 29, 2019, 10:27:18 AM by dougules »