Home > General Topics > Economics > Is owning a home mostly a bad thing?

Is owning a home mostly a bad thing?

  1. I agree.

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  2. All I see is a white box.
  3. ok . . . but with this advice he is a current homeowner. Maybe he has had enough and eventually will be a renter.
  4. Then he falls into the category of being wealthy. He points out that if you have money, you can afford luxury. For the rest of us, it is a trap.

    Owning a home enslaves most people for thirty years not only to the mortgage, but to RE taxes and upkeep. For people that can't save and invest, owning a home is better than not as long as they don't treat their home like an ATM machine. But even this assumes some luck.
  5. I get white box too so I done some "copy and pasting" this from a prior thread; this site sure does hate owning a home.

    From a site, Free By 50 which uses Shiller's housing data.

    Home price appreciation

    1890 to 2007 3.44%
    1900 to 2007 4.22%
    1920 to 2007 4.03%
    1948 to 2007 4.87%

    Or roughly splitting up before WWII and after:
    1890 to 1939 0.75%
    1940 to 2007 5.45%

    Or the past 100 years, 1907 to 2007 : 3.78%

    If you break it down into decade chunks we get:

    1890's 0.53%
    1900's 1.40%
    1910's 3.30%
    1920's -0.70%
    1930's -0.45%
    1940's 8.16%
    1950's 2.67%
    1960's 2.57%
    1970's 8.12%
    1980's 5.86%
    1990's 2.84%
    2000+ 9.27%


    So you live in an asset that appreciates 4-5% in the modern era, and if its in an area that's not dependent on manufacturing, that's even better. Of course the 2000 period is not going to be 9% but with all the negativity, it's buying time.
  6. Shift-refresh the page. It should load the video. Otherwise quit your browser and come back in.

  7. Home is not an asset, you know this right? Trust me after owning a couple homes I know the liability a home really is.
  8. He's right if, and this is an enormous if, you can invest your money wisely. Most people are better off with crappy returns or even small losses than they would be investing that money on their own in some stupid investments.
  9. Cubism. It's all the rage.
  10. But the flip side is also a problem. What about people that treat their homes like an ATM machine? It is one thing to roll college loans or house repairs into your mortgage, another to roll CC debt into it.

    Two sides of the same coin.

  11. Guess I should start drinking absinthe early today.


    I am with the others that believe a home is not an asset class.
  12. It really all depends, if you are able to trade and generate 20+% returns yearly then owning a home may actually make sense. One can successfully use their house as an ATM and invest that money wisely and beat the returns they're paying in interest and also own and home and possibly enjoy some capital appreciation in the property.
  13. In that scenario, you would never have bought the house in the first place, since your down payment in the RE asset class is appreciating far slower than if you traded that money instead. And if you already owned the house when you found this nice system, you would sell it and free up the extra cash to lever up.
  14. It seems like it would be ok to own a home if they would stop building new ones. Why would anyone buy my 12 year old house when they can buy a brand new one with whatever they want for the same price. Pretty soon you'll be talking new roof, furnace - air conditioner. And if you have lived in your house for decades if you did want to sell it it seems like you need to spend 30k to update all the shit just so it's desirable. It's a horrible investment unless you're paying cash but if you have a family in the burbs what are you supposed to do?
  15. very interesting, thread and point - nitro. i've sold my second home, already a few years ago at no loss, and honestly am looking to put my current home on the market in the next couple weeks. there are many arguments for and against, but for me there are two points impacting me, today. the current location, (city, state) is not where i want to stay and grow old. plus, the neighborhood has remarkably deteriorated over the past 2 years namely with increased crime and lack of maintenance from current home owners. yet, also as important -- i want the flexibility to be able to act, relocate or buy into an area, or home in the coming 5 years without having cash -- illiquid. on that note, i also am selling off goods, like extra cars etc for cash today, and putting that money to work in my trading because these larger ticket items simply will continue to depreciate. same can be said for a chunk of land currently owned. useless, depreciating assets that are illiquid and will continue to be more illiquid in the years, ahead. any constructive comments, would be great to keep me thinking etc. thanks for the thread!
  16. Your home is a LIABILITY, not an asset.
    An asset provides a positive income stream; a liability provides a negative income stream.

    I sold my condo in 2007 because it seemed very expensive and have rented units in luxury condos every since. I am CERTAIN my rent payments DO NOT cover hte mortgage, $400 monthly HOA, taxes, etc....especially here in Chicago.

    I believe the only time to own a home is when the prices are likely to appreciate; or you have a small child and want to provide 'stability.'

    Face it -- Americans are very emotional about what should be a rational, investment decision.
  17. YES, I agree with you but also keep in mind the condition in late 2008. IMO, the banking system was about to completely break, so moving money from my banks, into land/home was done to protect. now, i see them as depreciating instruments, that served a purpose. hence, time to act. at times, everything is not always black and white. and, i also agree owning a home with the potential for upside appreciation makes sense, along with owning because of family, and/or security needs.
  18. Guys, you can't think of EVERYTHING as an investment. It's usually a good idea to think of the return you will get on your money but quite honestly when it comes to your home, owning is more than a consideration of which investment class will outperform. When you own your house it no longer is a house, it becomes a home, you do what you want with it, you make it yours. As an investment, housing probably isn't the way to go, but think of all the things in life that you buy for your enjoyment that has ridiculously bad ROI's, have some fun people,enjoy life, it's more than just the money.

    Having said that you better be making good $ trading to compensate for living the life!!
  19. Owning a home is as smart as getting married.

  20. And you make yours the 24 bills a month related to owning "your" home.

    Oh, and with a mortgage you don't "own" squat.

    Rented and "owned".
  21. it depends on the economic environment. if a person had a nice amount of money in 2001 and no where to put it buying a home was ideal. 9 yrs later the home is well above purchase price and he's paying a mortgage below rents.
  22. I bought my house 2 years ago. I lived in a 1bd apartment that was refurbished 10 years ago and paying $875 per month. The home I bought was built in 2008 and is 3bd/2ba and my payments are $836 for P&I (with taxes and insurance though the payment comes to $1085 per month) Out of my mortgage payment about $240 per month goes to principal right now. So if i still lived in my apartment and just put $240 in the bank every month is $875 + $240 = $1115, so just by buying my house, thats an extra $30 in my pocket every month, not to mention 2 extra bedrooms and 1 extra bath, the place is twice the size of my old apartment and I have a garage instead of a carport which at least once per week some jackass would park in my spot at the apartment.

    In the future as rents increase,my mortgage stays the same. 20 years ago a house could be rented for $465 per month. Same home rents for about 1200-1500 today. Assuming the same inflation takes place (dont worry, it will be worse, im sure) then you can reasonable expect rents will be $3600-$4500 for an average house, while my mortgage will still bee $1100 per month meaning 20 years from now, I will be able to put $2k-3k extra per month away in my retirement account, while the renter cant.

    Its the same way with someone who bought 20 years ago. Right now they are able to save $1000 more per month than renters because their mortgage is so low.

    If you can live somewhere for free, vs buying your own house, then it might be worth it to just save that rent money to invest, but if you are going to be paying rent money out anyway...why are you paying someone elses mortgage and not your own?

    And even if you move after only a few years, you just rent your house out and let the tenents pay your rent. If the market rents are not high enough to pay your mortgage, then when you bought you house, you just proved that you are too stupid to invest your own money anyway and this conversation is lost on you.

    When I bought my house, I made sure that the payments were low enough that if i moved, I could rent it out and have cashflow. When you invest, always have more than 1 exit strategy.
  23. Very interesting how many people think a home is liability. We are taught to believe that a paper share of a company ( many that pay no dividends) are assets, but an actual home that gives land and shelter is a liability.
  24. The sentiment of this thread screams buy real estate. If this is indeed the wider viewpoint we must be near a bottom. When you see a article in Time magazine that shows the facts that real estate is a bad investment and its better to rent, well you know what to do....
  25. That is a very difficult question to answer.

    1) Different people have different ability to generate return of cash. If you are a hot shot trader but not a hot shot RE investor, obviously RE is not the way to go.

    2) Location, location, location. RE price is a reflection of local economy. Namely jobs. You are betting on the local economy when you buy any RE.

    3) 50+% of American own a home and they are not RE investor. Just like all those 401k account owners who are not traders. They get fed to the pros. The difference is the carrying cost is kinda high in RE and volume might not be there. On the other hand, leverage is cheap because of the government.
  26. My wife and I bought a home in 1992 in Southern California when real estate prices were at a low point. It turned out to be a good investment; not because I had any great foresight, but because we just happened to be in the right place at the right time. Our home is now worth 5x what we have invested in it. And, yes, you're right about stability. We're raising our two kids here and this is only place they've ever lived. I want to keep it that way until they graduate from high school. (Unless we leave the country, but that's another issue altogether.)

  27. So you live in an asset that appreciates 4-5% in the modern era


    That 4-5% appreciation vaporizes...going.. going.... gone....

    ------repairs and maintenance.
  28. If you only put 3% down, then that 4% appreciation is really 125% ROI.

    Repairs & maintenance do not equal 4-5% unless you bought a 20k house, then maybe you pay that much. The average person owns a $200k home and they are not paying 8K-10K per year in maintence & repairs.

    MAYBE if you bought a $200k home that was 50 years old you MIGHT have 1 year where you pay that much for a new roof or airconditioner, but not every year.
  29. I just laugh at every homeowner related thread on this site. Its called Elite Trader but every apartment dwelling asswipe in Camden is in here talking about home ownership.

    I've run into 2 people who know jack about RE on ET and that is Dr.Z and Surf and Dr.Z has become a raving radical liberal.

    You guys don't even know what maintenance is. It was ~600k to replace my slate roof 4-years ago. I got 1.2M off the price and over-financed to cover the roof. Its the stuff of nightmares lol but it has stayed well above water all through the downturn.

    Now if we can just get these clowns in D.C. thrown out I might make some money. I'm all in and am staying pat.

    Hey you've got to live somewhere, right? Might as well turn it into an R/r thing imho.
  30. I've always thought it was funny how home owners talk about "building equity" as though the value was materializing out of thin air. LOL. I guess it's sort of a way to trick themselves into saving. Some people need that I suppose.
  31. If a house costs $1000 to rent and a mortgage (PITI) costs $1000 on the same house when you buy it what is the smarter decision? Build equity, or build nothing with the same amount of money?

    You go ahead and keep paying rent on your apartment and after 30 years, you will still be paying rent. With homeownership you are done paying after 30 years.

    Its like you are saying that homeowners dont know how to save money when in fact homeowners save money alot better than renters.

    Renters get evicted for non-payment of rent 2000% more than homeowners get forclosed upon. I would say that makes renters alot less smart about money than homeowners on average.

    Homeowners generally have more discipline when it comes to money than renters.
  32. i wouldn't mind renting long-term instead of buying, but the properties i would consider buying and living in are not available for rent.

    you guys making the rent vs. buy argument haven't considered practical implications. perhaps if you were considering a 2-bedroom condo or average 3-bedroom home, you can easily find a rental instead of buying. but when you get into the higher end, virtually all the homes are only for sale not for rent. in this class of real estate you don't have many choices if you want to rent.
  33. You guys don't get it. A home is NOT an investment nor it is an asset

    When it comes to rent vs own, you just have to look at what make more economics sense to you. It the cost is about the same, then by all mean own a home. If it cost you 50% more to own a home, then stay rent. Of course, it all come to affordability.

    I bought a home recently, and it does cost more than what I used to pay in rent. However, now I live in a better neighborhood, in one of the top school districts in the state. Best of all, the house is bigger and my children can run around in the house.
  34. True, but if you own your home for 25 - 30 years, people replace kitchens pfftt. there's 40k or a bath 15K. Things wear out, carpeting a house 8k. Roofs, furnance, you can be replacing these things more than once. Add a deck, 10k. Buy a couple riding mowers 6k, Interior painting, driveways. That 4% (if you get it) starts to look a little thin.

    It is costing you real dollars to service that 4%.


    Rent vs Own? Owning has dividends, not sharing space with other people in an apt complex, doing what you want, etc. When your mortgage is paid off, taxes (water, school, re, sewer) are creeping up to the price of renting an apartment.
  35. True but it is never that simplistic of a comparison.

    LOL, maintenance, insurance, property taxes...

    Probably true in the general sense, bottom line is if you're not living below your means you're not saving.

    Another broad generalization, more renters are also low income.

    Maybe...a lot of "homeowners" chased the bubble right over the cliff too.

    The more interesting comparison to me is a renter who pays say $500 less a month in total cost than a mortgage holder and invests the difference and the money that would have gone to the down payment in treasuries. It's hard to run the numbers because of all the central planning tax shenanigans in the housing arena but would be a good analysis.
  36. What people always forget to factor in is the amount of time you waste every month on doing things to maintain your house.. Obviously this is # is lower on newer houses but the lawn will always need to be mowed, the snow will need to be shoveled, etc. If you're outsourcing these tasks the $ value is very evident and you still have to minimally manage these people. If you're doing the work yourself you have to realistically ask "would I be doing this if i didn't have to? Is there something else I'd rather be doing?". Frankly I don't think anyone can answer yes to the last question. Once you realize this isn't what you want to be doing you should calculate how much this time is worth (at least minimum wage).

    When you rent you have hassle free living. As long as your landlord isn't a deadbeat, all your shelter related issues are a phone call away (and if he is a deadbeat, you should consider moving out of the slums)

    You cannot compare rent $ vs. mortgage $ dollars where the amounts are equal because in virtually every market you cannot rent a property for the total carrying cost of the property. I used to pay some of the highest rents in the city and my friends would absolutely lose their minds over the amounts but what they failed to realize was that it would cost me at least twice as much monthly to own the same property. This is of course after I'd have to drop a 6 figure sum on a down payment into a luxury property which is generally illiquid in good times (imagine bad times?).
  37. The real problem with this thread is the failure to come to a basic understanding of the various terms being used and their contextual meaning. we have the terms...asset, liability, appreciation, depreciation, investment, and equity that all need to be addressed before we can even begin to reach a consensus on the risk/reward calculation of home ownership vs renting.

    Asset: In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).
    A home is not an asset...the equity in the home is the asset. If you have no equity in your home then your home is a liability.

    My wife has worked for Chase, Bank One, Wells, and is currently a VP in Residential Mortgages for another large bank and the most interesting thing is that the banks consider the equity in your home as their asset. How can the equity in your home be an asset to both you and the bank that holds the mortgage?

    A primary domicile is not an asset and shouldn't even be viewed as an investment. Equity is no good when you can't or won't access it for some other purpose. It is a place to live, put down roots, raise a family, or establish yourself as part of a community. The average length of homeownership is 6 years according to the NAR. Approx. 30% of mortgages are negative or near negative equity(less than 5% equity) but I would consider anything less than 20% equity to be worthless due to the fact that we are in a buyers market as well as the shrinking housing demand as well as the sharp decline of the credit worthy. If you really want to see how good of an investment you have in your home...put it on the market.
  38. I have done both. Here in an average market (ohio) I can tell you that a home is a financial money pit. The Wall Street journal settled this a while ago, and I can testify to that.

    There are just a few problems, the rental place you get around here for an equivalent mortgage payment isn't usually as nice with a few exceptions (although there has been an explosion of folks renting their homes). Privacy, space, scenery, etc. are best in a home. It comes down to what you value in life. I wanted to be away from people, a yard for my dog, and a garden so I bought a house. There are times I miss the freedom of a rental but on balance I am happy here.

    If you want to save cash and hassle, by all means rent.
  39. A mortgage is an "enforced savings plan," especially if you finance for a reasonable period of time. We used a 15-year mortgage and now own our house free and clear.

  40. Taxes make the diff, if you make a lot of money. We were renting a house, but decided to buy when the landlady wanted to raise it by 10%. You let the owner start getting away with stuff like that, and if you know about compounding, you know you're going to get killed.
    So, we bought.
    Just based on what I was paying in rent at the time, once you take out the tax deductions, my monthly payment is less than what it was at that time, which was more than 10 years ago. What's missing here is one simple truth: your monthly payment doesn't go up much, assuming of course that property taxes and home insurance are only a small part of the monthly bill. Obviously, if you refi at a good time you can make the payment even smaller.
    The extra expenses? Obviously, those can get paid for out of the savings on what would have gone for increased rent. The key here is to buy something that's solid in the first place, so that you can keep the expenses down during the first 5 or 10 years. We didn't have to do anything really major like replace the roof or redo the plumbing during that period since the house was sound. If you can manage that, and you make enough money to make the tax deductions worthwhile, it's a good deal. If not, not.
  41. Nothing beats owning a home. I couldn't stand living in an apartment years ago, piled on top of one another. The freedom that a home provides is priceless. You can blast the music if you want, you can enjoy your yard, have your own pool, park in your own driveway, and have so much more space.

    When I lived in an apartment 6 years ago, you couldn't blast the music at 2am, because you would disturb your neighbors. There was this big fat girl that lived below us and she would always complain that we were making too much noise just because we were walking and the floors squeaked. Did she expect us to fly around the apartment. She once banged her broom on our floor (her ceiling) because I turned over on the bed, the bed squeaked, and she heard the bed squeak, and that was too much noise for her. She was insane.

    Once, this drunk guy who we didn't even know started knocking on our door at 2am asking if we want to smoke weed with him.

    Also, our across the hall neighbors had their door kicked in by their roommate, because they didn't want to let him in for some reason.

    It was definitely great to move into a home.
  42. To me, it all comes down to taxes. If I can keep my property taxes below $1,000 a year, owning a home would be worth it.

    For that reason, I think my dream home would be one out in the middle of nowhere. A pot hole and weed filled driveway. The ugliest siding in existence. The outside paint job patches of random colors, making sure to "accidently" get paint on the windows. Install some fake panels of installation over the siding to make it look like the house is not completed. Scaffalding. Paint fake cracks and rust stains into the foundation. Throw some bleach on the front lawn. Get a rusted out pos junker, remove the wheels and place it on cinderblocks. Smear a mixture of soot, gravel, and woodchips on my roof to make it look like it is rotting.

    A valuable home to me is one that is worth less. That should keep the taxes low.
  43. I own 14 houses and collect over 110k in rent .Are you guys getting out of your mind,owning property is the best thing I did in my life.If you do not know how to buy a house is diffrent story.
  44. The vast majority of most people's net worth comes from appreciation on their homes over the years. So if renting costs equal owning costs then you basically get free CPI appreciation over the long-term. 3-4% returns per annum on 3-4 fold leverage, tax-free, is very nice. Whereas if you are a renter than in 20 years you'll be paying double, triple what you pay now. If you are an owner you will be almost paid off in 20 years.

    You don't have security as a renter, a landlord can throw you out with 1-2 month's notice and you have all the hassle of moving, paying for furniture to be transported, redirecting mail, updating all official records etc, hoping your new landlord is good and not an asshole etc.

    You cannot make property improvements or customisation as a renter, even owning furniture is difficult.

    Basically, there are downsides to both and upsides to both. Which makes sense depends on the relative costs and benefits on either side. At a certain price, renting becomes clearly better (e.g. when you can rent for 800 what you would be paying 2k to own), and at another price, owning is clearly better (e.g. if cost to own is 1k and cost to rent is 1200). In between those prices, it is down to individual circumstances. If you are going to move every 2-3 years then owning is a bad idea (unless you are talking about owning a rental, which is a good plan for serial relocaters).

    Altucher is telling us owning is bad, after a huge real estate bust. Talk about closing the stable door after the horse has bolted. Where was he in 2005-2007?

  45. Yes, it represents freedom as you have no landlord rules. You still have to pay the mortgage though, and if it is paid for, taxes still must be paid. So an individual never really owns his home free and clear.
  46. What a stupid thread, real estate ownership is just like any other investment, if you are good you make money if you are a retard you lose money.

    It all depends on WHAT and WHEN you buy, just like stocks, bonds, anything...

    There are advantages real estate has over others though, for example leverage: show me any other investment (other than shady currency) that let you use 1:10 leverage AND you dont get liquidated still paying your fixed 4% interest even if the underlying takes a 20% nosedive. On top of tax savings if primary residence.

    But it still all depends on what you buy, if you buy a million dollar mansion in the middle of arizona desert, nothing can save you...
  47. Paying off debt is building equity, clearly. Pretty basic financial concept. Earn 1k, pay off 1k debt, save yourself the interest payment. Do that enough times and you own a home free and clear. The value is materializing out of paying down debt, and eventually having no repayment and no rental costs. How is that a "trick"?
  48. Real estate is an asset in almost all cases. If you buy a 250k house with cash, you get an income stream from rents net of ownership costs; and you can resell the house, it is worth something. Assets are worth something, liabilities have negative worth. Yes you might not get what you paid, but the same is true of all assets that fluctuate in price. That doesn't make it a liability. Unless you can find a house with toxic waste or some other true liability that exceeds the value of the building and the land, then a home is an asset not a liability.

    You are confusing negative *cashflow* due to your aggressive financing, with negative yield from the asset. A negative yield condo would be one where maintenance, HOA and taxes were higher than the market rent. Your personal financial position or mortgage is irrelevant to assessing the market value or rental income from a property.

    For luxury real estate, renting is often cheap relative to buying, that is true. That is because richer people are prepared to pay a premium for the prestige and wealth-preservation/inflation-hedging properties of blue chip prime real estate. That means you can enjoy the luxuries of good location and condition at a relatively low cost as a high-end renter. Just don't forget that as a renter you are net short real estate, which is a necessity. Perhaps pick up a good value, decent middle-class area house somewhere nice and rent it out, so in 20 years it's paid off and you can retire there free and clear.
  49. Owning your home is not an investment. It is a living expense and a necessity, an asset with useful and necessary attributes that also happens to have some financial aspects. You have a requirement for shelter, and probably a requirement for a certain amount of space, certain level of decor, and locational factors like low crime, nice amenities, ok neighbours etc, or seclusion, nice countryside, decent weather and so on.

    This is not about real estate investing, being a landlord, making money etc. It's about having to pay for a roof over your head, and chosing a location to live, and whether it is better to do that by purchasing a home or renting it.

    There are far more considerations than merely the financial angle. If it was all about finances then you would simply buy a trailer or a log cabin in the middle of nowhere for peanuts, and invest the surplus cash in the markets.
  50. Hahaha....the exact same thing happened to me. I had an old lady living downstairs and she LOVED to use that broom handle to bang on the ceiling. She must have had superman hearing because any little sound and she was banging that broom. I still remember one time I was watching TV at a very very quiet level. It was so quiet I could barely understand what the people were saying on tv (I kept it quiet because it was 2am) Well the old woman with superman hearing thought the sound was too loud for her and started banging her broom which at 2am scared the shit out of me because her broom banging was so loud. After a while I learned to start jumping up and down on the floor so she could know what real noise was. When I started doing that, I didnt hear the broom banging so much as she knew i was goingto make so much more noise if she harrased me.
  51. Because you can save 1k without borrowing and without paying the interest. Unless you blow your 1k on cheap consumer products, then you might need to "trick" yourself into having the self-control to save the 1k instead. The value isn't "materializing", LOL. For most people, its the hard-earned money they make at their job.
  52. I keep hearing the argument not to buy because of all the extra costs. Costs like property taxes, interest and maintenance.

    The truth is when you rent you don't get out of these! The costs are simply passed to you by your landlord who is a business owner. A landlord will charge you all their costs+ the profit they want to make.

    For example, your AC breaks. Your Landlord will need to buy the parts to fix it. Then a salaried employee of a property management company comes out to fix the unit. So the property management company has to pay someone and pay for parts. You think they eat that? no way. It's factored into your rent. Renters think " hey, I get free repairs". They aren't free.

    My dad used to rent an apartment. He got a note from the landlord regretting to inform him that the rent was going up due to an increase in property taxes. Those taxes were being passed along to him all along.

    This idea (which I see a lot) that renters are getting free stuff while their landlord is the sucker paying all the bills is false!
  53. So you think that paying down the landlord's mortgage with rent money you'll never see a dime of again is a better idea?
  54. Now we see how so many traders can have the same system and get totally different results. There is a big difference between a primary residence and investment property. I clearly stated that a primary residence is not an asset nor should it be viewed as such. I wouldn't even consider a primary residence when calculating net worth...especially in the USA. When we have these types of broad reaching, all encompassing debates we are speaking purely from the law of averages. Hell I owned rental property in South Carolina while I was renting a condo in Georgia. The average family moves every 7 yrs, the average family will never own a home free and clear, and the average person doesn't realize that he is just average. Nothing is as common as the desire to be remarkable. Bubbles will exist until the ratio of wolves to sheep gets out of proportion. That is the real reason that Congress started their home ownership initiatives for the poor and the minorities.
  55. No you cant save 1k without borrowing. You still need $1k to pay your rent. How can you save that if you have to pay it to your landlord every month...meanwhile the homeowner who has a $1k payment its broken down like this (assuming you have a pretty new mortgage) $250 for principal, $500 for interest, $250 for taxes/insurance.

    So to break it down...the renter loses $1000 every month that he will never see again. The homeowner loses $750 every month that he will never see again. (and of course over time, that interest payment will be less and less) In 15 years, perhaps the homeowner is only paying $300 per month in interest and getting $450 per month paying towards the principal. Meanwhile the renter has had 15 yearly rent increases and is likely paying $2k per month now. Homeowner is really only losing $550 per month that he will never see again, while the renter is losing $2,000 per month that he will never see again. Homeowner now can save $1,450 per month 15 years later to invest, or pay down the house. Renter can only invest what he can save AFTER he pays $2,000 in rent.
  56. what are you talking about, of course it's an investment, or are you "emotionally attached" to your house and give it names?

    shelter is a basic need, but what does that have to do with anything. You could easily rent a place. By buying you are making an investment.

    Tell me this, if you know a house will drop 20% over the next 5 years, but you really like it, will you still buy? If the answer is no then congrats you are treating it as an investment, if the answer is yes then i guess you are just stupid or got money to burn.
  57. But 1k in the bank won't get you a roof over your head. Let's say in 30 years you save up 300k. Someone else got a house and a mortgage in year 1, and over 30 years spent 300k to pay it all off. At year 30 they own a house free and clear by paying off the debt. At year 30 you own a couple of items of furniture and a one-way ticket to palookaville, while your landlord has laughed all the way to the bank.
  58. An investment is something that you acquire purely to turn X amount of dollars into >X. It has no lifestyle value or use value apart from its financial return.

    Ownership of your residence has considerable use value, as I explained, for example being able to do it up how you want, make alterations, decorate, know you won't get evicted by a landlord, being able to keep who you want on the property (e.g. pets, sharers etc). So it is not an investment in the same way that a stock, bond, gold etc are investments.

    A house is a mixture of necessity (shelter), luxury (customising and enjoying your residence to your desires), and investment. Thinking of it purely in investment terms is naive.

    If I knew a house was going to fall 20% in value, but I would get sufficient benefit from ownership over those years to justify that loss, then yes of course I would buy it. Just like I would buy a new car that will fall 30% in the first year. There is nothing "stupid" about spending money to improve your quality of life, only an idiot or a broke loser would think that.

    Having to answer to a landlord, put up with his shitty taste in furniture and decorations, and to have the risk of having to move in a hurry, is undesirable to me and to most people who aren't financially hard up. Many people are willing to pay a premium to avoid those downsides, and to have more freedom and control over their homes.
  59. That's it right there. People keep ignoring upkeep and all the accesories you buy with a home over renting (my lawn alone cost north of a grand last year), so that even with the tax break I am losing money over renting. However if my money isn't to make my life better, then what the hell good is it?

    An apartment would save cash but my sense of peace would suffer.
  60. most people here arguing in favor of buying have forgotten to include the opportunity cost of the down payment. here in Calif, you'd have to put down $200k to 300k to buy a mediocre house now. if the renter makes 10% annually by investing it, he comes out ahead over the long run. of course this is ET where 10% is easily accomplished!! :D

    financially, renting is better. but practically speaking, owning has advantages like stability and more housing options. as i mentioned before, if you are looking at the high end, you have no choice but to buy because there are few rentals available
  61. It totally depends where you are in your life. House purchase s not a trader / stock investor type of deal. It ties you down to a place, you can not move on.

    Financially it may make little sense, but finance is not all in this regard. I was living all my life as renting out person, because i never wanted to settle. Now I plan on settling, and I am planning on building a house. Totally wasted money from a financial point of view, but I want a place to settle down, know I can have children there, wake up in a beroom that looks great and have an office area in the house that supports all my operations.

    Money (as investment decision) does not even enter into my decision here.
  62. I'm not talking about saving 1k over ownership expenses. I'm talking about saving as in building net worth. A guy makes $3000/month at his job, he spends $1000 on rent and $1000 on other expenses, he saves $1000.

    Sure it's easy to imagine hypothetical scenarios where buying is a better value, but it tends to not be for all the reasons mentioned on the previous 9 pages of this thread. Worth a read.
  63. The same guy could still do that with a mortgage and build equity in his own house instead of paying off his landlord's house.


  64. Those numbers are very misleading. The average home owner has owned his home for many years. The average renter is much younger. He simply hasn't had time to build wealth. He could be fresh out of college with student loans to pay back. Wouldn't have surprised me if the average renter had a negative net worth. Those numbers don't show you how much wealthier the average home owner could be if he had rented instead.

    Oh, and renters also include people who are forced to rent because they have a poor net worth to begin with, so they can't get a loan. So for them it's the poor net worth causing them to rent, not the renting causing the poor net worth. Correlation does not imply causation.
  65. As I mentioned in a different, related thread I would happily live in a apartment if they were well built like in Europe. Solid Concrete, double pane windows with a much larger air gap for insulation than the crap here. The only way to get it here is move into an expensive high rise which costs more than my house now. Prof Logic was correct building ICF concrete is the way to go.
  66. I'm beginning to think my renters have a better deal than I do.
    Maybe I'll move to a rented house, and rent out the one I'm buying.:)
  67. owning a house is a best thing, you can do with this what you want and don't bother any1 else, have good your own view in your house :D

  68. -------- that's a very good point
  69. No it isn't. You still have RE taxes from state governments hungry for money, upkeep, which requires to pay workers that demand more money, and when you go to sell your house, you have to have some luck that the market is at least neutral and not a buyers market, and then you pay a RE agent 5%. This sort of scheme may work for a few generations, but when the middle class can no longer afford to buy a house because their wages stay more or less the same and housing is rising ad-infinitum, who you gonna sell to? Same ponzi scheme as described in this thread:


    Forget the fact that most people buy more house than they need..

    "Capitalism will collapse under the weight of its own internal contradictions." - Karl Marx
  70. LMAO!!! So anything that contradicts your uninformed opinion is misleading? Just how would they have been wealthier by pissing their money away on rent every month instead of building equity that adds to their net worth?
    Oh please... the chart compares equal income levels and you can still get loans with almost nothing down. And if renting is so financially advantageous then where are all the high net worth renters who have benefited so much by flushing their money down the toilet on rent to offset them?
  71. So if you rent a house the landlord pays taxes and upkeep out of the goodness of his heart instead of passing them on?

    As for the RE agent... there are cheaper ways but even if you go the full commission route, prices don't always go down and even in a neutral to slightly down market a smart buyer can do just fine.
  72. Yeah, and as you pass them on the number of potential renters goes down. My ex-wife owns a three flat in one of Chicago most desirable neighborhoods. As her costs have gone up, she has done what you just said. With each rent increase, the number of months some of these properties sit not rented goes up, and the amount of time needed to support renting the property goes up. Everyone loses.
  73. So how does that make 15 year mortgages and owning one's house free and clear a bad thing? You're talking about another issue entirely.
  74. I agree, I'd rather have my investment in gold
  75. In theory renting is more expensive than buying because the landlord is essentially in the same position as a owner but also selling a service(all the costs of maintaining his property plus some kind of profit factor to compensate for his work).

    So the guy from the video is not correct when he talks about the costs of fixing the property, taxes, insurance. Those things tend to be embedded in the rent price because landlords are not in the business of losing money and over the long-run will show a long-run profit(I assume the buying and renting RE is not like the Airline business which doesn't show a long-run profit, but that seems a safe bet).

    Its possible that some landlords will own property in a negative cashflow basis on the hopes that price appreciation will offset the losses, I assume they are correct most of the time(otherwise they would be out of business eventually), so the 'savings' from the renter, are actually costs in the form of capital gains he didnt get because he didnt buy the property

    That said, at any given time prices can get out of whack and the renting vs buying will depend on valuation and the specifics of the person
  76. People keep comparing RE to nothing. How about comparing it to the bond market, equities, commodities, over say, the last 30 years?
  77. Actually, people keep comparing buying to renting. And since everyone needs a place to live, either you pay down your mortgage or you pay down your landlord's. You can't live in a stock or bond.
  78. I like to go out my back door and take a leak, get in tune with nature, so basically I didn't have much choice, I had to buy.
  79. That's not entirely accurate. An analogy is insurance. Buying automobile insurance is going to be a negative stream and a "bad investment" unless the insured gets into an accident. Then the payments to the insurance could end up being a tiny percentage of the costs of that accident.

    Renting is similar. In theory, a landlord owns multiple properties and can spread those year to year costs amongst all their tenants, therefore reducing the expense paid by each renter. You don't have that luxury when owning. Once you have to pay a very large sum of money for that unexpected disaster, there is no spreading of that cost to minimize the out of pocket expense.

    Renting will almost always allow you to get more home for the same price as purchasing because of those costs that are spread among many people.

    It's economies of scale. They apply to landlords as well as companies :)
  80. That's exactly the point right there. Neither renting or buying should be considered an investment. It's a necessity for living. It's these thoughts that have convinced many people to make bad decisions in buying a home because they are convinced it is an "investment". The only advantage that one should consider for purchasing a home is to have their privacy in owning their own home. Beyond that, trying to pass it off as some great investment whereas renting supposedly isn't is an illogical argument.
  81. well around here renting is definitely better financially. for example,

    a $1 million home would rent for about $43,000 per year.

    on the other hand if you bought the home outright, you are "paying" an annual opportunity cost of $100k (i can easily make 10% on the $1m). then add the property tax, maintenance, insurance and so forth, and the annual ownership cost comes out to ~$113k.

    i'm sure in some regions like texas the numbers are very different, but at least in my area renting is cheaper
  82. I dont believe thats relevant. What matters is what happens on net, I would be shocked if the insurance industry were a net loser of money in the long-run, they probably make money, that money must be coming from somewhere and thats the clients. Yes, you might get lucky and get a net positive return from that but on net the average client will lose money using it(this doesnt mean its a bad idea, just that it will cost money)
  83. Folks there is no one answer.

    From a purely financial perspective it depends on the specifics of each situation. From a quality of life point of view or other point of view it is the same thing.

    Given this, it is a fact that many rental homes are available right now (in markets I am familiar with) at just a fraction of their mortgage/upkeep/propertytax costs.

    That is an artifact of this particular era and is not a universal truth.
  84. So people in your area are renting houses for $43K/year that cost them $113K/year? I don't think so.

  85. What's an artifact of this era is houses selling at a fraction of what they did a few years ago and the HAI at a generational low. What markets are you talking about?
  86. However you slice it. owning a home is going to get more expensive. Have you seen the new lead safety regulations for contractors. Plumber, electricians, painters anyone who works in your home has to be certified.

    Between asbestos, lead, waste disposal and bulding permits (prices are a % of the value of work.) liability insurance. Every home is a mini brownfield to be regulated by the EPA and assorted permit nazis.

    Of course this only matters for those who follow the law, unlike Detroit, where they bulldoze a house and bury the remains in the basement.
  87. Well I think the arguments for ownership here have been pretty weak. Mostly just harping on the issue of paying rent, even as it has been explained repeatedly that there are numerous ownership costs that can offset that. And mostly ignoring the other great points that were brought up in the video. Granted that ownership is better in particular markets and particular circumstances. But if someone can't put more thought into it than "but you're throwing your rent awayyy!", then I would have to say that doesn't sound very rational.
  88. Obviously the landlord is making money off you if you rent, or he wouldn't do it. He seems to have it figured out. Complaining about mowing the lawn or shoveling snow? Come on now

  89. What state are you in ?

    In Texas the going rental rate is ~1% of the home's value.

    I am not sure about 1 million dollar homes but 1% is pretty close ranging from $50,000 townhomes to $500,000 homes around the Houston area.
  90. Hmm another one. People just seem to have a chip on their shoulder about the landlord making a buck. :p
  91. You explained nothing and don't hear anything that goes against your naive views.

    Everyone has to live somewhere. Either you can do so and pay down your own mortgage or you can pay down your landlord's like the sucker you are. If it makes you feel better to pretend that has no economic consequences, keep dreaming.
  92. So paying the landlord makes you feel like a sucker? You see how that is psychological and emotional rather than rational?
  93. I don't pay the landlord, YOU do, sucker.
  94. The best thing about home ownership is it forces the owner to build/save equity that can be used later. If you take a 30 year loan on a $150,000 house and pay all 360 payments you will have paid around $289,000 for it and that does not even include insurance, property taxes, and any repairs over 30 years.

    Assume $3000 x 30 years for property tax $90,000

    $1000 x 30 for insurance $30,000

    1000 x 30 for maintenance/ repairs $30,000

    In 30 years you will have paid $439,000 total cost for that home.

    Assuming 3% appreciation and you might be able to get $285,000 back out of it.

    The same home would rent for roughly $1300 in my area.

    So after 30 year of renting with no increase would have cost you $468,000 to live there but at the end of 30 years you have zero equity instead of $285,000.
  95. that would be 12% return for a year if you paid cash for 50000 house and renting it for 6K a year? hard to believe..i'm in PA..here you can have about 7-8% before any maintenance expenses(and taxes,condo fees, whatever)..so after it would be probably around 5% a year...with possibility that the house will loose the value in the future..i would skip that kind of investment..

  96. Recheck your math.

    A $50,000 house here will went for about 1% of it's value so $425-500 per month.

    So figure $6,000 for rental income

    Now subtract $1000 that you paid in property tax.

    Now subtract another $800.00 that you paid for property insurance.

    Now subtract another $1000 that you paid for repairs/ maintenance.

    Now subtract the 1% fee that is charged to manage it.

    So your net return assuming full rental is $2700 on a $50,000 investment.

    Far from 12%
  97. Doesn't matter. The point is that owning makes you FEEL superior to someone who rents. It's a pride thing. You're living "the American dream". Good for you. :p
  98. With a 15 year 4% mortgage and 20% down, you'd pay $888/month before property tax, insurance and maintenance for about $159,800 in payments.
  99. ROTFLMAO!!!! For YOU it's obviously a pride thing... you're stuck renting some shithole, paying down your landlord's mortgage like a chump and you're trying to make yourself feel better about it. For me, I have a choice so it's all about the money.


  100. Once you figure the other 3 in then you would have spent ~$235,000 for a house that is worth about $217,000 15 years later.

    It is still better that renting long term.

    Of course you could always get caught in a bubble and that $150,000 house may only be worth $100,000 in 15 years.
  101. Your home is not a passive investment, it's a necessity you *use* that affects your quality of life, freedom, privacy etc. The comparison is between buying your abode or renting it. Nothing to do with stocks, bonds or any other passive investment class.

    Even professional landlording with other properties is not comparable to passive investment in financial assets, because it is a time-consuming business. It takes maybe 5-10 hours a year to invest in index funds. It takes, at a minimum, hundreds of hours a year to be a competent landlord.
  102. That's not true. There have been numerous times where buying real estate is cheaper than renting. One-off major costs can be covered by insurance policies. Also, you have to factor in the likely rent increases over the long-term, versus the likely capital gains for owners over the long-term.

    Take a 15 year mortgage vs a 15 year renter. In year one let's be generous to you and say the rent is 800 per month all-in and the cost of ownership is 1200 all-in. By around year 9 the rent is now 1200 due to inflation, whereas the mortgage has not gone up at all. The house price has gone up the same as the rent.

    So the renter is now breaking even on cashflow, and has lost out on 50% appreciation in the property. In another 6 years the renter will be paying 1500 a month, whereas the owner will now be paying about 200 a month for upkeep, and ZERO on his mortgage because the house is paid off. He will also own the house, now worth 90% more than he paid for it, free and clear. Assume a 20% deposit, and assume the renter invests this at 8% per annum and pays no tax, it will make him about 40% profit after 15 years, compared to the homeowner making 170% profit due to paying off the mortgage.

    By year 15 the homeowner is just way, way ahead. Even if price has stayed flat or gone down slightly, he is still ahead.

    The only way he loses is if he moves and sells the property, and either doesn't buy another, or keeps moving and selling every 5 years or so, losing transactions costs each time. To avoid that, buy a well located place and if you have to move, rent it out and then rent somewhere in your new location.
  103. Don't forget to consider the capital gain. If your home appreciates 5% per annum, and you put down 20% (200k), you will turn that 200k into 2 million in 15 years. That's better than 15% per annum, and it's totally tax free. It also requires zero effort and you get to enjoy ownership over renting, and it's diversified from your trading/investing gains.
  104. Most insurance firms actually lose money on underwriting. They make their profits by investing the float, and earning more on that than they lose on the underwriting.

  105. You left out increased property taxes every year if the property is increasing in value like you claim.

    My property tax alone increased 10 % just from last year.

    Also insurance and repair costs.

    Even when paid off the home ownership cost will be well over $200 per month.

    The only time it would make financial sense to rent is if you are going to stay 3 years or less or if you suspect the housing market is in a bubble.
  106. Here's a spreadsheet I just threw together to calculate rent vs own. Red fields are the ones you plug in your numbers. 20% downpayment assumed, and opportunity cost of putting that downpayment up is considered.

    Assumes prop tax, insurance, and maintenance all increase with inflation, as well as rent.
    And yes, CPI rents have increased something like 3.6% annually over the last 30 yrs...
  107. LOL, where do homes appreciate 5% every year for 15 yrs?

    and no, the $1m gain in your example is not totally tax free. the limit is $250k/500k single/married.
  108. i'm in calif. around my area, the gross cap rate (annual rent divided value of home, before any expenses) is around 4-4.5%. i used to own properties in texas and the gross cap was 8-9%. maybe it's different now, but i never found any place in the country that was 12%

  109. I'm sure your area is a lot lower considering the hit the housing market has taken out there.

    4 to 4.5 % before expenses ?

    No way in hell I would put up with the landlord headache for that little of return.

    Here is one example in the Houston area.

    I can't find the exact house for rent and for sale but these 2 are in the same subdivision north of houston.

    House 1 is 1802 sq feet and is listed at $130,500

    That is $72.41 per sq ft


    House 2 is 1,723 sq ft and is for lease for $1350


    Using the $72.41 above would give you a rough listing price of $124,722

    So it is renting annually for roughly 12.98% of market value.

    I previously said they rented for ~1% monthly.
  110. the cap rate of 4-5% in calif is normal. it has been like this for decades, even before the bust. if anything, when housing prices take a hit, the cap rate should go up.

    yeah, 4-5% sucks and the people who invest in Calif real estate are doing it for appreciation. they just hope to break even with cash flow.

    a 13% cap is very good for residential. assuming prop taxes and insurance aren't absurd, 13% would get good cash flow. in a market like that, it would probably be better to buy a home.
  111. in California, San Diego at least: For the last 2 yrs, many REOs could/can be had for 8-9% cap rates (usually in the 100-200k price range though). 300s and up+, cap rates fall substantially. This all supports the premise that mid and high end housing has a long way to fall.

    And by the way, cap rates are NET of all operating expenses, including property taxes, all factored in. His # of 4.5% "gross" cap is adjusted downward to probably 3.5% or below for conventional cap rate, since it doesn't include prop tax.

    My #s are 8-9% AFTER operating expenses... Those are 100% occupied, of course.. (so you can discount that a little bit to your heart's content)

  112. I did forgot to include that in the neighborhood listed above in my example there is a $875 HOA fee that eats into that return.
  113. in san diego, a 100k property would be very low end. those ghetto properties have very high costs, primarily due to the fact they attract dead beats who are perpetually late on rent and skip out after 4 months.. a 5% high-end property is better than an 8% low-end property from my personal experience. that's because the 8-9% cap rate is really closer to 6-7% when you consider the months of non-payment. then add in the make-ready costs every several months..
  114. @ thread starter

    not with current prices. It's brilliant to own a couple of homes right now and possibly even within the next 10 years.

    Location. Location. Location.