The Worst Investment You Can Make: Buying a Home

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nscherneck
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The Worst Investment You Can Make: Buying a Home

Post by nscherneck »

Just read this article and am interested in others' thoughts...

http://www.dailyfinance.com/2014/07/19/ ... ng-a-home/
Nozzle
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Re: The Worst Investment You Can Make: Buying a Home

Post by Nozzle »

I didn't check out the 20-input calculator this article points to, but the article itself omits some important variables such as inflation, tax considerations and a long list of risks associated with renting (e.g. property owners putting their tenants' home up for sale). Not to mention the article offers only a singular example then attempts to extrapolate the rent-buy difference to conclude that it's almost never worth buying. The rent-vs-buy question depends a lot on location as well. I could go on, but I know there are already countless threads on this forum that have beaten this matter into the ground.

Bottom line: whether buying a home is a good/bad investment varies from person to person :beer
ALinLI
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Re: The Worst Investment You Can Make: Buying a Home

Post by ALinLI »

This rent numbers in this article are not realistic where i live anyway. Rent = 75% of equivalent mortgage payment and not other expenses like property taxes , maintenance etc. Good luck finding that around NY. Oh and in SFH have fun when owner/landlord sells the house and does not want to renew your lease and you have to move the family and find another great rental.
thx1138
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Re: The Worst Investment You Can Make: Buying a Home

Post by thx1138 »

A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.

So I wouldn't say buying a house is the "Worst Investment". I'd say more accurately buying a house isn't an investment at all, it is a living expense.

That said, there are many advantages both to buying or renting that can reduce that living expense depending on your situation. In general I think the common wisdom of young people scrounging to save and hurry up and buy is spectacularly bad advice. Young people typically need to be mobile and mobility and home ownership do not go together. Young people typically have low savings and concentrating that savings in one illiquid asset whose value is highly volatile with high transaction costs and with little control over when you can transact and is also highly leveraged is a pretty silly thing to do.

Typically the older you get the longer your period of residence is going to be and at that time there tends to be more advantages to owning rather than renting.
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Re: The Worst Investment You Can Make: Buying a Home

Post by kmok »

Agre with the previous posters, let me add that buying a house is so undiversified for most typical households that some homebuyers would do very well, some will do very poorly.
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mhc
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Re: The Worst Investment You Can Make: Buying a Home

Post by mhc »

I ran the calculator. It said I would be better off renting if I could rent for less than $1000/mo. My house would rent for over $2000/mo.

I believe the vacancy rate for rentals in my area is <4%. I might not be able to find a rental. Then what? I don't have that problem with owning my house.

I believe the article neglected the time value of money.

Since my house is not an investment, the article is foolishness. The article also neglected many of the pros/cons of renting and owning.
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Phineas J. Whoopee
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Re: The Worst Investment You Can Make: Buying a Home

Post by Phineas J. Whoopee »

nscherneck wrote:Just read this article and am interested in others' thoughts...

http://www.dailyfinance.com/2014/07/19/ ... ng-a-home/
The worst investment I can make? Me personally?

Well, sure, if Brian Lund estimates future stock market returns over 30 years at 9.4% after tax, and assumes the homeowner's a fool who doesn't maintain adequate emergency reserves, and that one will keep the mortgage for the full 30 years (seldom does that happen), and doesn't mention anything about rent increases it might attract some eyeballs. Give me license to make up ridiculous numbers and I can prove it's the best investment you can make, yes, you, you personally.

Cui bono? American Express Travel, Visa Black Card, Capital One, CheapestTextbooks, Motley Fool, AOL, Lifefactopia, Digitaltrends, Wired, Fox Business, and TechCrunch.

Oh, no, sorry, it isn't them at all. It's Daily Finance getting commissions from them. Made you click!

I personally made out quite well on my home purchase, thank Brian Lund very much.

All real estate is local.

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dodecahedron
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Re: The Worst Investment You Can Make: Buying a Home

Post by dodecahedron »

thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.

So I wouldn't say buying a house is the "Worst Investment". I'd say more accurately buying a house isn't an investment at all, it is a living expense.

That said, there are many advantages both to buying or renting that can reduce that living expense depending on your situation. In general I think the common wisdom of young people scrounging to save and hurry up and buy is spectacularly bad advice. Young people typically need to be mobile and mobility and home ownership do not go together. Young people typically have low savings and concentrating that savings in one illiquid asset whose value is highly volatile with high transaction costs and with little control over when you can transact and is also highly leveraged is a pretty silly thing to do.

Typically the older you get the longer your period of residence is going to be and at that time there tends to be more advantages to owning rather than renting.
True now but not in the past. We did very well by saving fast and hurrying up to buy a small starter townhome within a few years of finishing grad school circa 1980. Those were very inflationary times, marginal tax rates on our taxable savings were high, the real after tax rate of interest on our ARM mortgage was very negative, and our mortgage interest rates kept dropping while our first home dramatically appreciated due to inflation and growing numbers of nesting baby boomers, so we made a huge tax free capital gain we were able to roll into a much nicer and bigger house when we moved out of state to a lower cost of living area a little more than five years afterwards.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Meg77 »

Oh great another incomplete and oversimplified article on why buying a home is a terrible idea which conveniently leaves out the variables that make it look better (if not great) as an investment - namely tax deductions and leverage. This article doesn't even mention home appreciation! Usually they at least assume the place will increase in value at the rate of inflation and then dramatically compare that to the return you *could* be getting in the stock market.

Not to mention the forced savings component which, wrongly or rightly, benefits the average American greatly. For the record I really like that NYT calculator, and I do agree that most people overestimate the financial sense of owning a home due to maintenance and landscaping and all the other costs that are easy to underestimate. However the calculator appears to consider the entire mortgage payment a sunk cost of home-ownership when doing the comparison, rather than just the mortgage interest. This skews the penalty for owning by not taking into account any equity buildup beyond appreciation.

You can certainly use "averages" or examples to skew this argument either way you want, which is why the argument will never be settled, but these headlines seem to be along the lines of how stock headlines fluctuate with the market. Generally scare tactics and devoid of actionable data.
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interplanetjanet
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Re: The Worst Investment You Can Make: Buying a Home

Post by interplanetjanet »

Not much is new here.

All real estate is local, and what makes sense in one area probably will not in others. The "ownership premium" is radically different between single-family homes in, say, Omaha and San Francisco.

I rented for eleven years between periods of home ownership, and I think it was the right thing to do at the time - renting does come out ahead some of the time, so does buying. For young mobile professionals I think that renting is probably the best in many locations as the ability to pull up stakes and move easily has real value to your career.

I do think it's worth stressing that even in a market where buying is a "better deal", it still doesn't make it the right decision. Buying without sufficient reserves or the credit necessary to get a good mortgage (if needed) may be a bad idea. Being "house poor" is just another way of being a slave to your possessions.
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Rainier
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Re: The Worst Investment You Can Make: Buying a Home

Post by Rainier »

Pretty sure having kids is far worse. Who is going to write that article?
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Re: The Worst Investment You Can Make: Buying a Home

Post by bcjb »

It's not a good article but at least it provides a link to the New York Times Buy vs Rent calculator. I think that's a useful tool; it can't give you a definitive answer, because even the NYTimes doesn't know the future (home price growth, rent growth, inflation, and investment returns rates are unknown), but it tells you what the relevant variables are.

(Rainier: there are plenty of articles about the horrors, financial and otherwise, of having kids. I think Slate puts those out at a rate of 1/week.)
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Re: The Worst Investment You Can Make: Buying a Home

Post by staythecourse »

Rainier wrote:Pretty sure having kids is far worse. Who is going to write that article?
I would agree BOTH make poor investments. Also for many marriage is a terrible investment as well. It is a good lesson in life to learn that not every decision we make in life are nor should be financially motivated. At the end of life the one with the biggest pot of money does not "win". The goal is to be happy and as long as your finances allow. Who cares what someone else thinks or writes.

I have a wife, house, and child and would not trade any of them no matter how many articles prove they are not a good investment.

Good luck.
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Re: The Worst Investment You Can Make: Buying a Home

Post by user5027 »

Investing with Bernie Madoff would have been worse.
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Phineas J. Whoopee
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Re: The Worst Investment You Can Make: Buying a Home

Post by Phineas J. Whoopee »

Rainier wrote:Pretty sure having kids is far worse. Who is going to write that article?
:happy :happy :happy
Does it make a difference whether one rents or buys?
:happy :happy :happy

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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.
We've been over this a million times. It's an investment (it may be good or bad depending but its always an investment.)
The return is the imputed rent on the structure. That rent is also a consumption item in your budget.
if its too high you are over consuming housing.

the debt you acquire is also on you asset sheet, of course as a minus

Anything else is simply head in the sand

You need the same discipline on housing as any other investment. It just throws off a different kind of income
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Re: The Worst Investment You Can Make: Buying a Home

Post by chrysogonus »

I forget where I heard this (probably here), but someone once said a house is a hedge on the price of housing in a particular area. By purchasing a house, I'm not nearly as exposed to the fluctuations of the real estate market in that particular area. I think that's a useful way to look at it.
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Re: The Worst Investment You Can Make: Buying a Home

Post by YttriumNitrate »

Rainier wrote:Pretty sure having kids is far worse. Who is going to write that article?
I believe the answer is: Deirdre McMurdy
Kidonomics: Why kids are the worst investment ever
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sdsailing
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Re: The Worst Investment You Can Make: Buying a Home

Post by sdsailing »

The author of the article is a day trader. If he makes so much money trading, I wonder why he wastes time writing these stupid little articles ?

And he thinks nobody has made their fortunes in SFR real estate, but instead it is a "terrible investment" ?

Idiot !
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Re: The Worst Investment You Can Make: Buying a Home

Post by kmok »

chrysogonus wrote:I forget where I heard this (probably here), but someone once said a house is a hedge on the price of housing in a particular area. By purchasing a house, I'm not nearly as exposed to the fluctuations of the real estate market in that particular area. I think that's a useful way to look at it.
Not so sure about this, you can loose your job and stuck with a house that is under water. Think of guys who had bought a house in Detroit to 'hedge'. A hedge that gives you bad return in a bad time may not be such a good hedge.
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soaring
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Re: The Worst Investment You Can Make: Buying a Home

Post by soaring »

If the angle is owning a home is a bad investment then so be it regardless if accurate for multitudes of reasons. I own because it is NOT an investment but HOW I want to live. My property my privacy my way.

Good luck to all those that need an "investment" reason to own a home.
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Re: The Worst Investment You Can Make: Buying a Home

Post by ourbrooks »

Nah, kids aren't the worst investment; food is. Food is clearly an investment, because it has a return, your health and/or life. Setting a financial value on a human life is done routinely in damage suits and the like. To calculate the return on food, take the value of your life and subtract out what you spend on food. If the result is positive, it means you've made a profit on your food investment. Alas, there's no way to rent food so you can't compute an imputed rent from the cost of buying the food outright.

Clearly, a car is also an investment; because you can rent cars, you can even compute an imputed rent from owning a car outright. Some people even actually do sell cars for more than they paid for them.

Where do you draw the line between consumption items and investments?
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Re: The Worst Investment You Can Make: Buying a Home

Post by abyan »

That article is nuts. The difference between my condo's rent value and the sum of my mortgage, property taxes and condo fee is ZERO. I live in a bg urban area. Curious where the calculations are based on.
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Re: The Worst Investment You Can Make: Buying a Home

Post by thx1138 »

Professor Emeritus wrote:
thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.
We've been over this a million times. It's an investment (it may be good or bad depending but its always an investment.)
The return is the imputed rent on the structure. That rent is also a consumption item in your budget.
if its too high you are over consuming housing.

the debt you acquire is also on you asset sheet, of course as a minus

Anything else is simply head in the sand

You need the same discipline on housing as any other investment. It just throws off a different kind of income
I agree with all of that. But most people have trouble understanding dividends vs. total return in their portfolio much less concepts like imputed rent. So in general I still go with the first warning - it acts much more like an expense than an investment. It mostly only matches inflation (actually the land does, the structure actually depreciates) and it has very high maintenance and in many cases tax costs.

Probably the better way for me to have stated it is that renting or buying a house (that is a residence) is first and foremost consumption. And in my opinion that is the proper starting point. Once that is knocked into someone's head then we can move on to finer points of taxes, leveraging, inflation hedging, imputed rent and so forth.
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Re: The Worst Investment You Can Make: Buying a Home

Post by pkcrafter »

thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.

So I wouldn't say buying a house is the "Worst Investment". I'd say more accurately buying a house isn't an investment at all, it is a living expense.
+1
Definition: 1. In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money.
Nope, our home doesn't qualify.

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Re: The Worst Investment You Can Make: Buying a Home

Post by Traveller »

I'm on the "it's an investment" side, albeit a leveraged, risky, volatile one.

I don't buy some of the assumptions in the article, especially the "maintenance cost" issue. Just because your landlord pays the bill for the new roof or water heater doesn't mean you don't pay for it over the long term in rent. A house is a house and the cost is the cost. The difference is that a landlord will tack on his profit at the end of the day.

I've made more money on homes than I've made on stocks and bonds (granted I am a relatively new bogledite and didn't manage my investments well), but like anything else you have to be careful to buy low and sell high. I avoided buying in HCOL cities when I spent time there, but eagerly sought out good deals in lower cost areas. I bought and sold homes twice during the housing slump (2008 and 2012) . Lots of people sold low in desperation during that time (keeping some powder dry is a good thing).

At the end of the day, I've always had mortgage payments lower than local rents for similar space and have never taken any money out of my homes (and have built up substantial equity). I've had a few repair bills but nothing major. And my current mortgage payment is $1300 on a $700k home. You couldnt rent my place for under $5k.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Johno »

ourbrooks wrote:
Clearly, a car is also an investment; because you can rent cars, you can even compute an imputed rent from owning a car outright. Some people even actually do sell cars for more than they paid for them.

Where do you draw the line between consumption items and investments?
I agree that points up the less than absolutely clear distinction between other relatively long lived consumption items and houses. However I would draw the line somewhere in the middle of the house. :D The same would go for art and collectibles investments (probably a taboo for true Bogleheads and I don't partake either, but it's somewhat similar). It's a hybrid of investment and consumption.

I completely agree with Professor Emeritus' run down also, but not only is the fine point of 'invest for the return of imputed rent, but the imputed rent is an item in your consumption budget' going to be lost on most people, but also the house can give enjoyment because you own it. We love our house*. It makes us happier that we own it. It's not just an upfront payment for the return of imputed rent.

In general I see less harm for non-financially oriented people if they think of their house as just consumption than 'an investment'. The latter is where a lot of 'over consumption of imputed rent' comes from and that's big problem, as has been seen in recent years. But OTOH 'it's just consumption' can lead to ignoring the overall portfolio leverage and risk concentration many people take on with a house in their investment portfolio, of which it is actually also a part.

*it's also hard to generalize about how good an investment houses can be, to the extent they are. I believe Shiller found that long term appreciation of houses is something like inflation flat, but even if so that's an average. I found a price for our house from 1940, apparently consistent with the rent then being charged for part of if (built as a one family ca. 1900, it was a two family by 1940, a 3 family by ca. 1980 when converted back to a one family) and based on that it's appreciated by a factor of 225 in nominal dollars since 1940, ~7.6%pa; (v ~6.5%pa in the 20+ yrs we've owned it). 'Past performance is no gtee', etc. but there are major exceptions to any generalization that houses don't appreciate much in real terms, as well as the concept of depreciation. We looked at one time for houses in the suburbs: for some built only in the 1980's you really would be better off tearing down and starting over. But if our house isn't destroyed in a disaster the basic structure may be around for centuries.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Tanelorn »

Terrible article. Rent, maintenance, property taxes, tax deductions, and typical financing costs are likely all baked into the rent you'd pay some landlord to own the same house you do and rent it to you.

Sure you could do a lot better (or a lot worse) investing money in the stock market instead of your down payment and mortgage, especially if you do it at 5-10x leverage like the typical house purchase with 10-20% down. But you can still do most of that by just getting an interest only mortgage so you can keep the leveraged housing bet and go speculate on stocks with the principle part of each mortgage check.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Boglenaut »

Buying a home is not an investment.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

thx1138 wrote:
Professor Emeritus wrote:
thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house.
We've been over this a million times. It's an investment (it may be good or bad depending but its always an investment.)
The return is the imputed rent on the structure. That rent is also a consumption item in your budget.
if its too high you are over consuming housing.

the debt you acquire is also on you asset sheet, of course as a minus

Anything else is simply head in the sand

You need the same discipline on housing as any other investment. It just throws off a different kind of income
I agree with all of that. But most people have trouble understanding dividends vs. total return in their portfolio much less concepts like imputed rent. So in general I still go with the first warning - it acts much more like an expense than an investment. It mostly only matches inflation (actually the land does, the structure actually depreciates) and it has very high maintenance and in many cases tax costs.

Probably the better way for me to have stated it is that renting or buying a house (that is a residence) is first and foremost consumption. And in my opinion that is the proper starting point. Once that is knocked into someone's head then we can move on to finer points of taxes, leveraging, inflation hedging, imputed rent and so forth.
Sure but its bizarre beyond description to calculate your portfolio to 4 decimal places on a spread sheet and have no idea what is happening with the biggest investment most folks make
Last edited by Professor Emeritus on Fri Aug 08, 2014 8:14 pm, edited 1 time in total.
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Re: The Worst Investment You Can Make: Buying a Home

Post by rca1824 »

thx1138 wrote:A home that is your residence is not an investment, it is an expense plain and simple. If you make the mistake of viewing it as an investment you'll make a number of behavioral errors, the most common one being buying too much house
How is a house not an investment? Just as a bond provides coupon payments and a stock provides dividends, a house provides a place to live (saving rent payments), or can be rented out for profit, and can appreciate in value. By all definitions, it is an investment. You can argue that the opportunity cost of investing in stocks makes it an inferior investment compared to other alternatives, but it is an investment nonetheless. Other investments: a college degree, a bulk order of consumer goods, weatherproofing your home, durable consumer goods that last forever, a fuel efficient vehicle, etc. Anything that is profitable in the long run or saves you costs is an investment IMO.

Now clearly if you buy too large of a home that exceeds your needs and you don't get utility from the excessiveness and you aren't renting out the extra rooms for profit, and you could've put that money into the stock market instead, and your house doesn't appreciate in value.. then on the margin the house is a "bad" investment. But it is also possible for the house to be a good investment if you buy the right amount and you get a huge tax deduction and it saves you rent and it appreciates in value. It all depends.
Last edited by rca1824 on Fri Aug 08, 2014 8:13 pm, edited 1 time in total.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Boglenaut wrote:Buying a home is not an investment.
But buying bonds and renting a home with the income is an investment ?
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Re: The Worst Investment You Can Make: Buying a Home

Post by Louis Winthorpe III »

Not relevant to me. I bought a house because I want to own one and can afford it. To me, it's a durable consumer good.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Louis Winthorpe III wrote:Not relevant to me. I bought a house because I want to own one and can afford it. To me, it's a durable consumer good.
Durable consumer goods are also investments. They may be good or bad but an automobile that you buy instead of rent is a classic investment.

A subsistence farmer invests in land and eats the income
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Re: The Worst Investment You Can Make: Buying a Home

Post by Median Joe »

It also turns out that monthly P&I is incorrect in the article.
It comes to around $1420 and not $1853.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Louis Winthorpe III »

Professor Emeritus wrote:
Louis Winthorpe III wrote:Not relevant to me. I bought a house because I want to own one and can afford it. To me, it's a durable consumer good.
Durable consumer goods are also investments. They may be good or bad but an automobile that you buy instead of rent is a classic investment.
"Investment" has different meanings in economics and finance. This board is pretty obviously focused on investing in the finance sense. Nobody buys a car on the belief it will generate income or appreciate in value. I'm reminded that any point can and invariably will be argued on the internet.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Louis Winthorpe III wrote:
Professor Emeritus wrote:
Louis Winthorpe III wrote:Not relevant to me. I bought a house because I want to own one and can afford it. To me, it's a durable consumer good.
Durable consumer goods are also investments. They may be good or bad but an automobile that you buy instead of rent is a classic investment.
"Investment" has different meanings in economics and finance. This board is pretty obviously focused on investing in the finance sense. Nobody buys a car on the belief it will generate income or appreciate in value. I'm reminded that any point can and invariably will be argued on the internet.
I'm not sure a board can have a focus. A car generates imputed income. Your definition of finance is extremely narrows Businesses decide all the time whether to buy or rent productive equipment. That decision was always analyzed by the finance department but the investment decision is made by management.

you are describing "portfolio investment" not investment. Portfolio investment is a leftover for most firms. it is what to do with spare cash that you cant use in the business today. I"investment" is what you do with money In the business. It is far too important to be left to the finance types.
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Re: The Worst Investment You Can Make: Buying a Home

Post by wilked »

Exactly. If I buy an iPad instead of renting one
http://www.meetingtomorrow.com/cms-cate ... er-rentals
that is an investment.

If I buy a TV rather than lease one how can that not be an investment?
http://www.buddyrents.com/electronics-r ... television

People with a finance mind will understand this, for others it might be best to strictly use traditional financial vehicles as their definition of investments
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Re: The Worst Investment You Can Make: Buying a Home

Post by Louis Winthorpe III »

Professor Emeritus wrote: A car generates imputed income.
Yes, in the economic sense. I acknowledged that above. People here spend most of their time discussing investing as I defined it above. You can't retire on imputed income. [I'll help you: "Oh, but you can! You can sell your car and retire on the proceeds!"]
Professor Emeritus wrote: Your definition of finance is extremely narrows
Uh-huh.
Professor Emeritus wrote: Businesses decide all the time whether to buy or rent productive equipment . . . You are describing "portfolio investment" not investment. Portfolio investment is a leftover for most firms. it is what to do with spare cash that you cant use in the business today. I"investment" is what you do with money In the business.
I'd venture a guess that the majority of posters here are people rather than firms. Enjoy yourself.
mikeast
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Re: The Worst Investment You Can Make: Buying a Home

Post by mikeast »

Oh sure, rent a comparable house in a similar neighborhood for %75 of mortgage ? I think the author is the
one who is "delusional."
Professor Emeritus
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Louis Winthorpe III wrote:
Professor Emeritus wrote: A car generates imputed income.
Yes, in the economic sense. I acknowledged that above. People here spend most of their time discussing investing as I defined it above. You can't retire on imputed income. [I'll help you: "Oh, but you can! You can sell your car and retire on the proceeds!"]
Professor Emeritus wrote: Your definition of finance is extremely narrows
Uh-huh.
Professor Emeritus wrote: Businesses decide all the time whether to buy or rent productive equipment . . . You are describing "portfolio investment" not investment. Portfolio investment is a leftover for most firms. it is what to do with spare cash that you cant use in the business today. I"investment" is what you do with money In the business.
I'd venture a guess that the majority of posters here are people rather than firms. Enjoy yourself.
OFGS the principles are the same. WE all are firms when we are talking a production and consumption. A hunter-gatherer is a firm. Making a flint spear is an investment. Knowledge not to eat polar bear liver is human capital. Making a wigwam is an investment etc

Sheesh
Angelus359
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Re: The Worst Investment You Can Make: Buying a Home

Post by Angelus359 »

I bought a cable modem instead of renting one from Comcast.

Initial investment: 65$
Savings per month? 7$
After a year, it is profitable.

The same can be said for housing.

You buy a house, and once it's paid off, not having to continue payments is the profit relative to renting.

If you sell it, and begin renting, any money had by not paying rent is investment profits.
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Professor Emeritus
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Angelus359 wrote:
You buy a house, and once it's paid off, not having to continue payments is the profit relative to renting.
If you sell it, and begin renting, any money had by not paying rent is investment profits.
Not quite, the income from a house you own begin as soon as you live in it . it is called imputed rent and you are spending it on housing

Whether you borrow money at the same time has no effect.

The biggest advantage to living in your own home is the tax saving on the imputed rent. if you owned bonds (an "investment" according to the spread sheet zombies) and rented a house your have to pay taxes on the income.

Whether a house is a good investment or not cannot easily be determined until you move out and or "sell" the house.
Tanelorn
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Re: The Worst Investment You Can Make: Buying a Home

Post by Tanelorn »

Professor Emeritus wrote: Whether a house is a good investment or not cannot easily be determined until you move out and or "sell" the house.
Whether or not it was a profitable investment, relative to renting, can't be determined until you sell. Whether or not it was a good investment can't be determined without reference to what your invested capital would have returned over the same period if it wasn't tied up in the house. In a flat real estate market and an up stock market, renting will lead to a better financial outcome assuming you invest your down payment and principle payment money towards stocks.
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WolfpackFan
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Re: The Worst Investment You Can Make: Buying a Home

Post by WolfpackFan »

The BIG difference is my payments stop once the mortgage is paid off, Brian Lund, ya knuckle head.
Angelus359
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Re: The Worst Investment You Can Make: Buying a Home

Post by Angelus359 »

In my area, you can get a nice apartment for 850$ a month, or an equally nice condo for 85000$ with 280$ hoa

If you do some quick math, on a 15 year mortgage, the condo is cheaper, even monthly.

Houses are a different story. Buying costs more monthly than renting.
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Tanelorn wrote:
Professor Emeritus wrote: Whether a house is a good investment or not cannot easily be determined until you move out and or "sell" the house.
Whether or not it was a profitable investment, relative to renting, can't be determined until you sell. Whether or not it was a good investment can't be determined without reference to what your invested capital would have returned over the same period if it wasn't tied up in the house. In a flat real estate market and an up stock market, renting will lead to a better financial outcome assuming you invest your down payment and principle payment money towards stocks.
I agree, I was using the term in your broader sense. However
Boglegrappler
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Re: The Worst Investment You Can Make: Buying a Home

Post by Boglegrappler »

I've bought and sold three homes so far, and if I compare the appreciation (and loss, in one case) to the S&P 500 index, in each case the stock index was substantially higher than my home appreciation. That doesn't take into account that I would have had to rent, and that if I had rented, I'd have had trouble finding a large enough place to rent for long enough, and that I wouldn't have been able to do things to the home that I wanted to do.

Having said that, from about the mid-70s through about 2007 or so, people who owned homes got their shelter for "free" because the overall appreciation was typically greater than the out-of-pocket costs of occupying the home. This was more true in the growth urban areas than in the heartland, but it was still true. I think young people today are looking carefully before they invest a lot of their savings into homes, and that is a change from the preceding 30+ years.
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WolfpackFan
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Re: The Worst Investment You Can Make: Buying a Home

Post by WolfpackFan »

If you do some quick math, on a 15 year mortgage, the condo is cheaper, even monthly.
Can you do some quick math on who comes out ahead after that 15 years is up?
Professor Emeritus
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Re: The Worst Investment You Can Make: Buying a Home

Post by Professor Emeritus »

Boglegrappler wrote: Having said that, from about the mid-70s through about 2007 or so, people who owned homes got their shelter for "free" because the overall appreciation was typically greater than the out-of-pocket costs of occupying the home. This was more true in the growth urban areas than in the heartland, but it was still true.
no question true and most likely due to the one time movement of married women with children into the professional workforce. That created both a a buying group with enhanced income willing to pay for location. We live inside the beltway in Montgomery county Md. Our next door neighbor's house has been unimproved since 1974. The FMV tax assessment has from 50K to 600 k in that time. the land alone is worth at least that for a tear down. More than twice the cpi although not as much as an investment in the s&p 500. however you cant live in the S&p 500

I doubt this will happen again.
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