I don't understand those who say owning your own home is bad investment

[jnw]

I'm not sure that insurance is so great either. That $5k deductible might be more than it would cost to replace the roof without insurance.
Those super fancy shingles are $30-35 per bundle, with 3 bundles being 100sqft ("A square" in roofer parlance). For a basic, low-pitched roof on a 1000sqft home you probably need 13-15 square. So, $1300-1500 in shingles conservatively. Add all other materials (tar paper, nails, flashing, etc) and the total bill is probably a bit under $2k. The rest is just labor. That's a small enough job that crews around here would have it torn off and replaced with a couple of hours left in the work day.

The roof cost the previous owner here $8000.  I have a copy of the invoice.  It was part of the deal closing the house, to replace the roof.

[sonofsven]

I'm not sure that insurance is so great either. That $5k deductible might be more than it would cost to replace the roof without insurance.
Those super fancy shingles are $30-35 per bundle, with 3 bundles being 100sqft ("A square" in roofer parlance). For a basic, low-pitched roof on a 1000sqft home you probably need 13-15 square. So, $1300-1500 in shingles conservatively. Add all other materials (tar paper, nails, flashing, etc) and the total bill is probably a bit under $2k. The rest is just labor. That's a small enough job that crews around here would have it torn off and replaced with a couple of hours left in the work day.

I just had a roof put on (new construction, 38 sq).
40 year "architectural" $117/sq
Underlay paper $95/5 sq
Weatherlock ("ice and water" underlay) $190/2 sq
Starter shingles $52/bundle
Ridge vent $101/20'
Ridge shingle $68/bundle
1 1/4" coil nails $103/box
Total, including roof edge metal (different supplier, haven't got the bill so approximate) : $8,500

Labor rate (no tear off, install only, 6/12 and 10/12 pitch) $180/sq, $6,840 total

Simple roof design is definitely less expensive, as you can see the extra misc sundries are all really expensive right now.

You should see my bill for cedar shingle siding! $150/bundle

[clifp]

One thing I’ve learned is that insurance actuaries are very good at their jobs. The entire insurance industry relies on them accurately assessing risk and pricing that into the policies with a healthy profit margin.  That’s not to say one shouldn’t have insurance (or “self insure”).  I do and I’ve absolutely benefited when my home flooded. But on average (which is to say across thousands of policies written) the insurance company will profit. Otherwise they go bankrupt.

Tl;dr - through your policy you pay for the mitigated risk, plus some.

In most cities in the US, at least one of the biggest/most expensive was built and/or owned by an insurance company, thanks to the premiums of millions of policyholders.
That's why other than home insurance and an umbrella policy I always buy either no or the minimum insurance possible.

[SeattleCPA]

I'm way late on this thread, but I'm going to do my usual shtick.

"I don't understand those who say owning your own home is bad investment."

I don't either. It does not make sense--cannot make sense--that owning your own home is necessarily a bad investment.

Think of it this way: If it is always better to rent, then who are you renting from? A philanthropist? All homes are owned by someone and all people have to live in a home (unless you think being homeless is a great way to go through life). If all else is equal, then you get all the income that your landlord would be getting by owning the home yourself. Even better, the playing field is heavily tilted in favor of the homeowner. The taxes, subsidies, costs, etc. all make it financially better to rent to yourself.

That doesn't mean that home ownership is always a good investment. It can be a bad one if you do it wrong. There are also many situations in which renting is a better idea no matter what. So, be smart and do the math.

People who don't think that home ownership makes financial sense always, and I mean always, do not account for the imputed rent. I don't have anything against J. Collins, but he wrote a very bad article in which he totally did not account for the imputed rent, and because of that, it was all very wrong. Thankfully, Morning Glory and SeattleCPA said all the right things at the beginning of the thread so I'm just being redundant here, but... imputed rent, imputed rent, imputed rent!

Actually, @aasdfadsf I don't think you're being redundant. You flag three important issues: The point about someone's landlord not being a philanthropist... the subsidies owners receive including tax deductions.. and then the elephant in the room... which is JL Collins ignoring imputed rent.

Thanks for pointing these issues out. (I boldface these bits of your useful remarks above to make them stand out.)

FWIW, when I tried to calculate the IRR on the property the OP bought, I ignored (forgot!) the tax savings. And that bump in return could be substantial.

[Paper Chaser]

I'm not sure that insurance is so great either. That $5k deductible might be more than it would cost to replace the roof without insurance.
Those super fancy shingles are $30-35 per bundle, with 3 bundles being 100sqft ("A square" in roofer parlance). For a basic, low-pitched roof on a 1000sqft home you probably need 13-15 square. So, $1300-1500 in shingles conservatively. Add all other materials (tar paper, nails, flashing, etc) and the total bill is probably a bit under $2k. The rest is just labor. That's a small enough job that crews around here would have it torn off and replaced with a couple of hours left in the work day.

The roof cost the previous owner here $8000.  I have a copy of the invoice.  It was part of the deal closing the house, to replace the roof.

I have no doubt that you can spend more on the roof than my estimate. Especially if you use the contractors that chase hail storms and go through your insurance company. They're not exactly known for low prices.

If we use sonofsven's labor rate of $180/sq, that's $2700 for a 15sq roof. $2k for materials would put you just under your $5k deductible.

All I'm saying is that based on some of your other threads you seem to really concern yourself with small dollar amounts (coupons, subscriptions, slightly higher utility bills, etc). For somebody that's that detailed, it's probably worth getting a couple of estimates in normal times (not right after a big storm), without going through your insurance. You might be surprised and save yourself a couple hundred bucks. Or not, in which case you'd just use your insurance. At least you'd know for certain.

[jnw]

I'm not sure that insurance is so great either. That $5k deductible might be more than it would cost to replace the roof without insurance.
Those super fancy shingles are $30-35 per bundle, with 3 bundles being 100sqft ("A square" in roofer parlance). For a basic, low-pitched roof on a 1000sqft home you probably need 13-15 square. So, $1300-1500 in shingles conservatively. Add all other materials (tar paper, nails, flashing, etc) and the total bill is probably a bit under $2k. The rest is just labor. That's a small enough job that crews around here would have it torn off and replaced with a couple of hours left in the work day.

The roof cost the previous owner here $8000.  I have a copy of the invoice.  It was part of the deal closing the house, to replace the roof.

I have no doubt that you can spend more on the roof than my estimate. Especially if you use the contractors that chase hail storms and go through your insurance company. They're not exactly known for low prices.

If we use sonofsven's labor rate of $180/sq, that's $2700 for a 15sq roof. $2k for materials would put you just under your $5k deductible.

All I'm saying is that based on some of your other threads you seem to really concern yourself with small dollar amounts (coupons, subscriptions, slightly higher utility bills, etc). For somebody that's that detailed, it's probably worth getting a couple of estimates in normal times (not right after a big storm), without going through your insurance. You might be surprised and save yourself a couple hundred bucks. Or not, in which case you'd just use your insurance. At least you'd know for certain.

Thanks for the suggestion. I agree with you. If it was me, I'd probably get a lot of quotes.  I like to save money :)  I not only focus on small dollar amounts but things which amount to large amounts.. e.g. refraining from dining out multiple times per month.

[PDXTabs]

FWIW, when I tried to calculate the IRR on the property the OP bought, I ignored (forgot!) the tax savings. And that bump in return could be substantial.

But with the SALT caps and the increased standard deduction how many people still get a tax break? The OP's house is almost paid off, very little mortgage interest there.

[SeattleCPA]

FWIW, when I tried to calculate the IRR on the property the OP bought, I ignored (forgot!) the tax savings. And that bump in return could be substantial.

But with the SALT caps and the increased standard deduction how many people still get a tax break? The OP's house is almost paid off, very little mortgage interest there.

She's owned home for 11.5 years. SALT cap has been in effect for 2018, 2019, 2020 and 2021. So four of those years. Therefore first seven and a half years, she maybe got bigger deduction, right? Also she's been getting mortgage interest deduction.

Probably since Trump tax cuts, she's taken standard deduction. But before that? Possibly significant subsidies. And then to bang the drum I keep banging, you'd want to include this benefit in your analysis of the economics of home ownership. Also SALT deduction comes back in 2026, I think...

P.S. Just skimmed the subsidies OK provides to homeowners and those look relevant in some situations too. For what that's worth.

[jnw]

I always take the standard deduction.  My income is so low.   So I never benefited from the interest I paid on this place in any way.

I've had the home 8.5 years.  Hoping the roof will last another 11.5 years for a total of 20 years on roof.  If I pay off this home within the next 2.5 years, I will have paid of a 30 year loan in 11 years :)

[roomtempmayo]

Then my heir(s) can live in the home mortage free, or sell the home for whatever for a good amount of money. I figure the home will appreciate at least around the average inflation.

That may all be true in Oklahoma, but living in the rural northeast makes me skeptical about it always being the case.

Houses can and do decline in real value.  There is no guarantee that any particular house or region will even keep pace with inflation.  There are examples of this happening all over the Rust Belt and Appalachia.

In regions that go into an economic death spiral, the security of owning a house outright is often toxic.  Instead of moving toward opportunities, people just stay and do nothing.  Complacency in bad circumstances is not a gift, and owning a house outright often serves as a basis for that complacency.

[jnw]

Then my heir(s) can live in the home mortage free, or sell the home for whatever for a good amount of money. I figure the home will appreciate at least around the average inflation.

That may all be true in Oklahoma, but living in the rural northeast makes me skeptical about it always being the case.

Houses can and do decline in real value.  There is no guarantee that any particular house or region will even keep pace with inflation.  There are examples of this happening all over the Rust Belt and Appalachia.

In regions that go into an economic death spiral, the security of owning a house outright is often toxic.  Instead of moving toward opportunities, people just stay and do nothing.  Complacency in bad circumstances is not a gift, and owning a house outright often serves as a basis for that complacency.

Yeah I understand.  I honestly wouldn't mind if this home halved in value since I am never moving.  I rather pay less property taxes :)   But I bought it at $76K and now zillow says it's worth $125k eight years later.   I paid $22k in interest over the past 8 years.  So doing okay so far.

[Villanelle]

I always take the standard deduction.  My income is so low.   So I never benefited from the interest I paid on this place in any way.

I've had the home 8.5 years.  Hoping the roof will last another 11.5 years for a total of 20 years on roof.  If I pay off this home within the next 2.5 years, I will have paid of a 30 year loan in 11 years :)

Meanwhile I'm seeing one side of selling our rental property as losing the nice, inflation-hedging, low-interest mortgage that has about 9 years left on it, to which I have never paid an extra penny so I could invest that money instead!

[PDXTabs]

I always take the standard deduction.  My income is so low.   So I never benefited from the interest I paid on this place in any way.

I've had the home 8.5 years.  Hoping the roof will last another 11.5 years for a total of 20 years on roof.  If I pay off this home within the next 2.5 years, I will have paid of a 30 year loan in 11 years :)

Meanwhile I'm seeing one side of selling our rental property as losing the nice, inflation-hedging, low-interest mortgage that has about 9 years left on it, to which I have never paid an extra penny so I could invest that money instead!

Yup. I'm all up in this thread writing about how I don't view home ownership as a good investment. But it can be an excellent inflation hedge in the USA where you can get a 30 year fixed rate loan. But you don't buy a hedge to be an investment, you buy it to be a hedge.

[SeattleCPA]

But you don't buy a hedge to be an investment, you buy it to be a hedge.

I disagree. Lots of portfolio construction is about hedging risks.

E.g., people buy real assets--such TIPS, timber, oil and gas properties, real estate, etc--partly because they do hedge a particular kind of investment risk, specifically inflation.

And then people include other things in portfolio to hedge other risks.

I mean, one of the reasons we use passive indexes is because they hedge risk.

[techwiz]

I honestly wouldn't mind if this home halved in value since I am never moving. 

I think the above statement is key in understanding why some people will say owning a home is a bad "not an" investment.  If you never plan on moving, some people myself included do not see a primary residence as an investment. I consider it an asset that has the ability to keep up with inflation, but not an investment. Currently, I have the same outlook of never moving. If I change my mind and sell I would still have to live somewhere and the money from the sale of my house would likely be rolled into a new place. I don't see buying a home as a negative, just not an investment. 

On the other hand if someone bought a home to live in, fix it up and flip, or rent it out, I would consider that as an investment.

[Dicey]

In my twenties, a friend became a CPA. He wanted to buy into a practice, so he sold his home, put 20% down on a new one and used the rest of the equity to buy into the practice. It was the first time I ever heard such a thing was possible and it made quite an impression. Of course he's a rich, retired dude now.

[SeattleCPA]

I honestly wouldn't mind if this home halved in value since I am never moving. 

I think the above statement is key in understanding why some people will say owning a home is a bad "not an" investment.  If you never plan on moving, some people myself included do not see a primary residence as an investment. I consider it an asset that has the ability to keep up with inflation, but not an investment. Currently, I have the same outlook of never moving. If I change my mind and sell I would still have to live somewhere and the money from the sale of my house would likely be rolled into a new place. I don't see buying a home as a negative, just not an investment. 

On the other hand if someone bought a home to live in, fix it up and flip, or rent it out, I would consider that as an investment.

Respectfully, the flaw in this position is the analysis needs to include the imputed rents. That seems to be the omission that JL Collins, some Bogleheads and some MMMers are making here.

This obvious statement: If I buy an investment for $100,000 and two decades later I sell it for $50,000, that change in value doesn't on its own mean the investment was bad.

Similarly, if I buy an investment for $50,000 and over two decades it grows in value to $100,000, that change doesn't mean the investment was good.

The investor needs to also include the cash flows (in or out) she or he experienced over the two decades.

So, the interest income if a bond.

The dividends if a stock.

The cash flows if a direct real estate investment.

The cash flows effects if a home you own and occupy.

Put all this stuff into a spreadsheet. Calculate the internal rate of return--or better yet, the net present value. And voila, you'll then know whether the investment was roughly good or bad.

[SeattleCPA]

In my twenties, a friend became a CPA. He wanted to buy into a practice, so he sold his home, put 20% down on a new one and used the rest of the equity to buy into the practice. It was the first time I ever heard such a thing was possible and it made quite an impression. Of course he's a rich, retired dude now.

Peter Thiele in an interview (or maybe his book?) has remarked that people think passive investing is best and only way to invest but that it's really not. Even though it's produced great returns over last 3-4 decades. (The decades I saved.)

I wonder if gambits like your friend's will become more important if we enter a long period of modest equity returns.

[Mr. Boh]

I am continually amazed at the bad advice parroted around here regarding investing in real estate. I first noticed it with Collins. It's become a weird dogma here.

Lots of posters here will tell you how real estate is a bad investment while espousing the virtues of bonds. BND is down over 9% in the last 12 months and down over 5% in the last 5 years! They will tell you this is good because bonds provide ballast and correlation etc. etc.

I would like a show of hands if this is you. Seriously.

Take the time to read "The Rate of Return of Everything" paper that SeattleCPA linked. It may be eye opening! It was for me.

[jnw]

I just calculated, and my home value for past 8.5 years has grown by 6.5% year over year.   My biggest repair cost me $1200 (AC evaporator core) and next biggest repair was like $150.   (Not counting the $1500 on floor tile since insurance paid for that 4x over.)  So not only got a decent return, had to do little repairs.. but also enjoyed having a large backyard with private fence, 2 car garage, no noisy neighbors banging on walls.. can barbecue now.  Have my own washer & dryer etc..   So my quality of life has improved along with still profiting from it financially.  The house came with a brand new roof and water heater which were installed a week before we moved in.  Will need to replace the AC condenser by next year and that will cost like $2500 I imagine.. it'll be the largest repair I've done to the home in 9.5 years.

The house payment was not too much more than the rent for a 1 bedroom apartment.  Like $100 more.

We have done exactly zero upgrades because this home had really everything we wanted already.  And we didn't buy any new furniture .. only a few pieces of used furniture for $25 to $100.   When you go from a 1 bedroom apartment to a 3 bedroom house.. you just move each room into the rooms of the new place, and are left with 2 spare rooms.  One you fill with used cheap furrniture for guest bedroom for example.. or whatever else.   Perhaps put bookshelves ($25 each) and a desk ($50) and what not in the other room.  Doesn't have to cost really anything to move into a new house; I think the "furnishing it" argument is weak since we already have so much stuff already packed into our tiny apartments.. often having to rent storage because there isn't enough room for it all.

Something to be concerned about is the square footage I guess.. it costs a lot to air condition say a large 2000 square foot home compared to 1000 square foot.  Fortunately for us we got a smaller square footage home and the electricity bill isnt' too bad relative to the apartment.

All the money I've put into this place in mortgage payments results in me owning this property.   If I had paid $500 per month for the past 8.5 years for the 1 bedroom apartment, that would of been $51,000 thrown away.   Whereas I have only thrown away $16,000 in property taxes and homeowner's insurance on this home.  I don't count the mortgage interest I've paid here as "thrown away" because the property value has increased more than the interest I've paid, by twofold.  And also again I've done like less than $2000 repairs to this home, or about $19.50 per month in repairs since I moved here.

So for us buying has been a good investment both financially and psychologically.  But we did buy when homes weren't expensive like they've been for the past couple years.. We bought like 4 years after the housing bubble burst, back about 8.5 years ago.

EDIT: Btw, if you take care of your furniture you can use it for many years and then sell it for what you paid for it.  Like the sofa we bought for $75 five years ago.. we could get $75 for it now.  So it really wasn't an expense, but more of a transfer of assets.  It's a fixed asset and only depreciates it if you manage to wear it out.   A $25 bookshelf won't lose value.

[nereo]

I am continually amazed at the bad advice parroted around here regarding investing in real estate. .

Confused - do you consider owning your own home with no intention of selling the same as investing in real estate?

[Mr. Boh]

I am continually amazed at the bad advice parroted around here regarding investing in real estate. .

Confused - do you consider owning your own home with no intention of selling the same as investing in real estate?

Confused - "with no intention of selling"  I honestly don't know what to make of this.

I will say that I have no intention of selling some of the stock I own because the capital gains are staggering. I will either give this stock away through philanthropy or my kids will inherit it. I still consider this stock an investment. Would you consider it an investment?

I also have a rental property that I've owned for 14 years that I have no intention of selling. It's a little 3 bedroom house in front with a little 1 bedroom building on the alley. It hasn't been vacant in years and it mints money. I like the tax break from depreciation and I like the diversity it provides to my stock portfolio. Is this an investment?

As for my primary residence, of course I have an intention of selling it. The plan is to downsize when the kids go off to college in 8 to 10 years. We bought this house* 14 years ago (2008!) to raise our family in. I spent a some of those years looking for a different house to buy so I could turn this one into a rental. Nothing quite worked out so I bought a different rental house that seemed cheap. In all those years I always considered all the houses I've owned investments. Of course this is anecdotal but these three houses that I own have been very very good investments for me. I guess I should state that although I have no intention to sell some of these assets I reserve the right to do so.

*I leveraged the house with a fifteen year mortgage so I could keep the bulk of my portfolio in stocks. I paid off the mortgage about 3 years ago.

[JLee]

I'm way late on this thread, but I'm going to do my usual shtick.

"I don't understand those who say owning your own home is bad investment."

I don't either. It does not make sense--cannot make sense--that owning your own home is necessarily a bad investment.

Think of it this way: If it is always better to rent, then who are you renting from? A philanthropist? All homes are owned by someone and all people have to live in a home (unless you think being homeless is a great way to go through life). If all else is equal, then you get all the income that your landlord would be getting by owning the home yourself. Even better, the playing field is heavily tilted in favor of the homeowner. The taxes, subsidies, costs, etc. all make it financially better to rent to yourself.

That doesn't mean that home ownership is always a good investment. It can be a bad one if you do it wrong. There are also many situations in which renting is a better idea no matter what. So, be smart and do the math.

People who don't think that home ownership makes financial sense always, and I mean always, do not account for the imputed rent. I don't have anything against J. Collins, but he wrote a very bad article in which he totally did not account for the imputed rent, and because of that, it was all very wrong. Thankfully, Morning Glory and SeattleCPA said all the right things at the beginning of the thread so I'm just being redundant here, but... imputed rent, imputed rent, imputed rent!

People who argue for home ownership don't always include the transaction costs involved on both ends.  If I ever want to sell my house, I'm probably looking at $30k.   If you stay there long enough, then it generally works out -- but had I landed an awesome job that required a move shortly after buying a house, it would hurt.

That said, given what has happened to rental prices in my area (northern NJ) I am super glad I bought pre-pandemic.

[jnw]

I knew when I bought this place I'd die here, and I don't see that changing after being here almost nine years, fortunately :)

[PDXTabs]

I am continually amazed at the bad advice parroted around here regarding investing in real estate. I first noticed it with Collins. It's become a weird dogma here.

Lots of posters here will tell you how real estate is a bad investment while espousing the virtues of bonds. BND is down over 9% in the last 12 months and down over 5% in the last 5 years! They will tell you this is good because bonds provide ballast and correlation etc. etc.

Not me, I don't advocate for bonds with negative real yields. I'd rather own real estate! Along those lines, I know some people who own their house outright. It's not for me but it definitely allows them to take more risk elsewhere.

[afox]

This thread is too long, i didnt read it except for the first few posts.

The main problem I see with RE "investors" is a basic math problem. RE "investors" dont generally keep track of their costs and time associated with their "investment".

One way that this is proven is with returns from REITs and profitability of RE companies. Those companies do account for all of their expenses and they are profitable but they dont make wild claims about profitability that many including the OP do. They would if they could. This doesnt mean its a bad deal, but the RE "investors" I know are bad at math and generally fooling themselves. Its okay to me because they are providing value to the community by improving properties, offering rentals, etc.

[Mr. Boh]

The main problem I see with RE "investors" is a basic math problem. RE "investors" dont generally keep track of their costs and time associated with their "investment".

Is your argument that the real estate investors you know are bad at record keeping thus real estate is bad investment?

[clarkfan1979]

This thread is too long, i didnt read it except for the first few posts.

The main problem I see with RE "investors" is a basic math problem. RE "investors" dont generally keep track of their costs and time associated with their "investment".

One way that this is proven is with returns from REITs and profitability of RE companies. Those companies do account for all of their expenses and they are profitable but they dont make wild claims about profitability that many including the OP do. They would if they could. This doesnt mean its a bad deal, but the RE "investors" I know are bad at math and generally fooling themselves. Its okay to me because they are providing value to the community by improving properties, offering rentals, etc.

One of my friends bought a townhouse in Chicagoland in 2007 for 180K. I bought my first rental in Fort Collins, CO in 2007 for 182K. For both of us, we both thought we got a deal because they were both foreclosures that needed a little bit of work. His condo is now worth 200K and my rental is now worth 475K. Real estate can go either way, I guess.   

[Mr. Boh]

One of my friends bought a townhouse in Chicagoland in 2007 for 180K. I bought my first rental in Fort Collins, CO in 2007 for 182K. For both of us, we both thought we got a deal because they were both foreclosures that needed a little bit of work. His condo is now worth 200K and my rental is now worth 475K. Real estate can go either way, I guess.

This topic is really rather silly in light of the overgeneralizations that are made. Obviously real estate investing has everything to do with the individual property. Important factors such as location, condition, price, interest rates etc. determine if an investment will be a good one. However for some reason I like this topic so I'm going to keep beating this dead horse.

At first blush clarkfans friend seems to have made a bad investment while clarkfan did well. Many posters seem to be implying that neither should have invested in real estate because better returns could have been had elsewhere. In fact in 2007 I invested in AAPL. My returns were much greater than either clarkfan or his friend. Does this mean that clarkfan made a bad investment while he should have bought apple stock? No because you have to live somewhere.

With regard to the OP lets look a little closer at clarkfans friends condo in Chicago. Of course I don't know any of the specifics but for the sake of argument lets assume he put down 20% on a 15 year mortgage. Let's also assume that his mortgage payment is equal to whatever rent he would pay elsewhere in Chicago (in 2007). After 15 years the mortgage is paid off and the original 36k is now worth 200k. That seems to me to be a good return on investment. He now lives mortgage free in an era of ever inflating rents. In my opinion he has gained price stability of his housing at a time when rents are likely to keep increasing. In fact he has had this price stability for the entirety of his home ownership.

The OP has made a similar investment. She didn't have the expenses that many posters claimed she would have. She now has housing security at a decreasing cost. In my opinion she did much better buying a house than she would have done renting.

[PDXTabs]

One of my friends bought a townhouse in Chicagoland in 2007 for 180K. I bought my first rental in Fort Collins, CO in 2007 for 182K. For both of us, we both thought we got a deal because they were both foreclosures that needed a little bit of work. His condo is now worth 200K and my rental is now worth 475K. Real estate can go either way, I guess.

This topic is really rather silly in light of the overgeneralizations that are made. Obviously real estate investing has everything to do with the individual property. Important factors such as location, condition, price, interest rates etc. determine if an investment will be a good one. However for some reason I like this topic so I'm going to keep beating this dead horse.

I don't think that it is silly. I think that it is a great example of idiosyncratic risk.

[Villanelle]

One of my friends bought a townhouse in Chicagoland in 2007 for 180K. I bought my first rental in Fort Collins, CO in 2007 for 182K. For both of us, we both thought we got a deal because they were both foreclosures that needed a little bit of work. His condo is now worth 200K and my rental is now worth 475K. Real estate can go either way, I guess.

This topic is really rather silly in light of the overgeneralizations that are made. Obviously real estate investing has everything to do with the individual property. Important factors such as location, condition, price, interest rates etc. determine if an investment will be a good one. However for some reason I like this topic so I'm going to keep beating this dead horse.

At first blush clarkfans friend seems to have made a bad investment while clarkfan did well. Many posters seem to be implying that neither should have invested in real estate because better returns could have been had elsewhere. In fact in 2007 I invested in AAPL. My returns were much greater than either clarkfan or his friend. Does this mean that clarkfan made a bad investment while he should have bought apple stock? No because you have to live somewhere.

With regard to the OP lets look a little closer at clarkfans friends condo in Chicago. Of course I don't know any of the specifics but for the sake of argument lets assume he put down 20% on a 15 year mortgage. Let's also assume that his mortgage payment is equal to whatever rent he would pay elsewhere in Chicago (in 2007). After 15 years the mortgage is paid off and the original 36k is now worth 200k. That seems to me to be a good return on investment. He now lives mortgage free in an era of ever inflating rents. In my opinion he has gained price stability of his housing at a time when rents are likely to keep increasing. In fact he has had this price stability for the entirety of his home ownership.

The OP has made a similar investment. She didn't have the expenses that many posters claimed she would have. She now has housing security at a decreasing cost. In my opinion she did much better buying a house than she would have done renting.

Of course every market is different, but where I am, rent is *significantly* less than a mortgage, even before taking into account property taxes, insurance, HOA, maintenance, and other expenses associated with owning. So you couldn't find anything anywhere near the conditions I bolded in your post. I checked zillow for the closest house to me that is semi-comparable.  A few miles away, a place is listed for $1.3m.  That likely means it will go for 1.4+, but let's stick with 1.3.  With 20% down, that is about $5500 just in P&I on a 30 year (not 15, which would of course be much higher--about $2500 more).  Property taxes add another $1000, then you heed HOA, insurance and maintenance.  But without those, PITI is about $6600, or $9000 for a 15 year. Or  Rent would probably be about $4000.     

[Mr. Boh]

One of my friends bought a townhouse in Chicagoland in 2007 for 180K. I bought my first rental in Fort Collins, CO in 2007 for 182K. For both of us, we both thought we got a deal because they were both foreclosures that needed a little bit of work. His condo is now worth 200K and my rental is now worth 475K. Real estate can go either way, I guess.

This topic is really rather silly in light of the overgeneralizations that are made. Obviously real estate investing has everything to do with the individual property. Important factors such as location, condition, price, interest rates etc. determine if an investment will be a good one. However for some reason I like this topic so I'm going to keep beating this dead horse.

At first blush clarkfans friend seems to have made a bad investment while clarkfan did well. Many posters seem to be implying that neither should have invested in real estate because better returns could have been had elsewhere. In fact in 2007 I invested in AAPL. My returns were much greater than either clarkfan or his friend. Does this mean that clarkfan made a bad investment while he should have bought apple stock? No because you have to live somewhere.

With regard to the OP lets look a little closer at clarkfans friends condo in Chicago. Of course I don't know any of the specifics but for the sake of argument lets assume he put down 20% on a 15 year mortgage. Let's also assume that his mortgage payment is equal to whatever rent he would pay elsewhere in Chicago (in 2007). After 15 years the mortgage is paid off and the original 36k is now worth 200k. That seems to me to be a good return on investment. He now lives mortgage free in an era of ever inflating rents. In my opinion he has gained price stability of his housing at a time when rents are likely to keep increasing. In fact he has had this price stability for the entirety of his home ownership.

The OP has made a similar investment. She didn't have the expenses that many posters claimed she would have. She now has housing security at a decreasing cost. In my opinion she did much better buying a house than she would have done renting.

Of course every market is different, but where I am, rent is *significantly* less than a mortgage, even before taking into account property taxes, insurance, HOA, maintenance, and other expenses associated with owning. So you couldn't find anything anywhere near the conditions I bolded in your post. I checked zillow for the closest house to me that is semi-comparable.  A few miles away, a place is listed for $1.3m.  That likely means it will go for 1.4+, but let's stick with 1.3.  With 20% down, that is about $5500 just in P&I on a 30 year (not 15, which would of course be much higher--about $2500 more).  Property taxes add another $1000, then you heed HOA, insurance and maintenance.  But without those, PITI is about $6600, or $9000 for a 15 year. Or  Rent would probably be about $4000.   

Villanelle I agree with you. You are making my point for me. I am saying that by buying a house you are locking in the price you pay for housing. If you are a renter you are at the mercy of the market which as we have seen recently can make big sudden moves. In the above example the property was purchased in 2007 thus locking in that 2007 cost. I don't know the first thing about Chicago real estate but I would bet that rents were cheaper in 2007 than they are today.

In my area housing has become so expensive that people are being squeezed out. Most of the rental houses have been transformed into housing for rich people. Now people can't find nice places to rent regardless of price. The people who bought houses in 2007 have done very well with their investment but more importantly, they have the security to live where they want. The whole housing situation here makes me sad. I honestly feel bad for renters right now. I'm a landlord and renting out my units units has never been easier or more lucrative, but I'm not hardhearted enough to gouge.

In the OP JenniferW stated that she "didn't pay much more each month than I did paying rent." I am not saying that Villanelle or anyone else should buy a house in this environment. I'm saying that by buying a house you isolate yourself from price shocks of the real estate market. Of course the market could crash and the house could be underwater but I'm willing to bet in fifteen years the market will have more than corrected. I personally think that the real estate market is overheated and due for a pullback but one never knows with markets. I try not to time any market.

[mcampbell]

Let's cut to the chase. You're really asking if a primary residence gets 7%/year, is this an investment? And my answer is still a resolute "no." The imputed rents aren't cash flow or even income, because the income stream is coming from yourself. You may get capital appreciation, but unless you downsize or move to a lower cost area, it's not very useful. It may be a great financial decision, but I don't consider it an investment.

Woof Imputed income is literally the best investment you can have during FIRE. One of your biggest impact on retirement will be your tax rate. If owning a house drops you from selling $120k to 80k a year in capital gains, you saved a massive amount of tax. Imputed rents will always have better returns then dividends or capital gains.

[SeattleCPA]

Let's cut to the chase. You're really asking if a primary residence gets 7%/year, is this an investment? And my answer is still a resolute "no." The imputed rents aren't cash flow or even income, because the income stream is coming from yourself. You may get capital appreciation, but unless you downsize or move to a lower cost area, it's not very useful. It may be a great financial decision, but I don't consider it an investment.

Woof Imputed income is literally the best investment you can have during FIRE. One of your biggest impact on retirement will be your tax rate. If owning a house drops you from selling $120k to 80k a year in capital gains, you saved a massive amount of tax. Imputed rents will always have better returns then dividends or capital gains.

Okay just to muddy the waters.

I think you make a good point that owning your own home and so "saving" the net rental income does good things to your taxes. Basically because under current tax law, the government doesn't tax your imputed net rental income.

But I don't think imputed rent is the best investment you can make during FIRE.

[DadJokes]

Heck, owning a home with a <3% interest rate on the mortgage is looking like a pretty good investment these days.

The downside is that we can't port our mortgage, so we have quite the disincentive to move for a long time.

[jnw]

Here's a report on my home expendatures this year.  Mortgage Interest, Homeowner's Insurance, Property Taxes, Fixed Appliances and Repairs.

Fixed Appliances only include oven and dishwashing machine.. I don't put washer, dryer and fridge under home, but household instead.. these are items which don't typically come with a home when you rent it.

So I had a couple big expenses finally after 10 years of being here.  The HVAC needed replacing and the dishwashing machine went out recently.  So altogether down about $7800 in repairs.   Hopefully the HVAC and dishwashing machine last me 15-20 years -- going to maintain both regularly.  (Our old dishwasher is like 25 years old.. started smoking recently and the baskets are shot as well.)

Roof is due for replacement in about 10 years.. 20 years total .. that will be around $6k in today's dollars. 

I think the oven will last another 20 years .. we just use the stovetop anyways -- the little Breville we have handles all our oven needs for the two of us.