How have your homes as investments done?

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TomCat96
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How have your homes as investments done?

Post by TomCat96 » Tue Mar 15, 2016 3:52 pm

Just wanted to ask the homeowners in here,

After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?

I guess the corollary to that would be, if you had cash today, would you use it to finance a home or allocate more to your portfolio?

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Toons
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Re: How have your homes as investments done?

Post by Toons » Tue Mar 15, 2016 3:56 pm

My first home I purchased for 40k and sold for 120,000k owned for 15 years
Second home purchased for 135,000 sold for 195,000 owned 15 years.
Home I am in now,,,,it won't matter,
Hopefully It will be the one they "carry me out of" :happy :happy
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orca91
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Re: How have your homes as investments done?

Post by orca91 » Tue Mar 15, 2016 3:57 pm

I didn't invest in my home. I purchased it and took a loan out to do so. :happy

jjface
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Re: How have your homes as investments done?

Post by jjface » Tue Mar 15, 2016 4:01 pm

If you are talking about pure house price increase/decrease then not good. I bought at about $150k 7 years ago and it is worth about that now if not less. We are financially better off vs renting but the time and stress of maintaining a house is getting to me and we shall rent for a bit next!

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JDCarpenter
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Re: How have your homes as investments done?

Post by JDCarpenter » Tue Mar 15, 2016 4:06 pm

First house, bought for use during DW's residency :oops: , lost 10% on four year holding period (Basis-net sale proceeds).

Second house, bought as our "to die in house" :oops: :oops: , lost 25% on a much higher basis over a 12 year holding period when the local economy and DW's practice prospects died before we did.

Third house, probably will gain a fair amount due to acreage and encroaching subdivision development--but unlikely to make up for the first two even on a nominal basis.

Luckily, except for the present house/land, we didn't see them as investments.
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mhc
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Re: How have your homes as investments done?

Post by mhc » Tue Mar 15, 2016 4:07 pm

I do not view my home as an investment.

Purchase price: $190k 16 years ago
Current value: $350k
Finished basement: $30k
Maintenance/yr: $2k (?)

Overall, probably about the same as inflation, which I would expect. I don't do the whole imputed rent thing.

SouthernCPA
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Re: How have your homes as investments done?

Post by SouthernCPA » Tue Mar 15, 2016 4:11 pm

My house would be doing a lot better as an investment if my wife didn't want to keep upgrading the kitchens, bathrooms, floors, trim, etc....

123
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Re: How have your homes as investments done?

Post by 123 » Tue Mar 15, 2016 4:12 pm

Real estate, houses, and homes generally have the largest transaction costs of any category of investment. Since most individuals are, at least in part, financing their home it is difficult to see it as an investment because it's only value as an "investment" occurs when the owner doesn't need it any more (i.e. passes on or moves to a custodial care situation). Generally you don't sell a home unless you expect to acquire other accommodations since most folks need somewhere to live (unless they're going to jail permanently).

The transaction costs on real estate are like paying a surrender charge on annuity or life insurance that never decreases.

That said our heirs will consider our home to have been a great investment. The amount of land is fixed in most areas.

We had some friends who were serial home renovators. They would buy, renovate, and then sell and move every 2 - 4 years to capture the capital gains exclusion on each property. Their kids didn't really get a chance to set down any neighborhood roots while growing up. The couple divorced before any of their kids finished high school. Don't know if the renovation cycle contributed to the marital difficulties. Of course due to the divorce the last family home had to be sold since two incomes were necessary to pay the mortgage. Each parent then bought their own place and the kids go back and forth due to joint custody provisions. It's okay, the family is used to moving.
Last edited by 123 on Tue Mar 15, 2016 4:58 pm, edited 1 time in total.
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Re: How have your homes as investments done?

Post by Levett » Tue Mar 15, 2016 4:19 pm

It never was and never will be an "investment."

It's our home--where family was raised and where grown children and grandchildren come to be pampered.

When we are gone there will be the value of the home to distribute, but I don't think that's what the kids will regard as the highest value.

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KlingKlang
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Re: How have your homes as investments done?

Post by KlingKlang » Tue Mar 15, 2016 4:27 pm

I like my house because it keeps the rain and snow off of my head when I am sleeping. So far it has also done a good job of keeping 2 and 4 legged animals from bothering me.

One more vote for "my home is not an investment".

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Re: How have your homes as investments done?

Post by fareastwarriors » Tue Mar 15, 2016 4:28 pm

My investment property is doing great. I bought a 3-unit back in 2012. I'm cash flow positive and have good tenants. I paid $300k and could probably sell it for 550k+ now. My primary residence (home) is doing great too since the appreciation in the area has been nuts. I bought in late 2014 for 400k but I believe I can sell it easily for $600k+ now.

But my home is not an investment and it wouldn't matter to be if it's only "worth" $200k.

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Re: How have your homes as investments done?

Post by White Coat Investor » Tue Mar 15, 2016 4:28 pm

TomCat96 wrote:Just wanted to ask the homeowners in here,

After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?

I guess the corollary to that would be, if you had cash today, would you use it to finance a home or allocate more to your portfolio?
Here's the way I look at it. The dividend is the saved rent. I think I could sell the place for $600K and I think it would rent for $3K a month. So that's a 6% dividend. However, a good chunk of that rent, perhaps 45%, would go toward expenses if it were rented (we pay far more than that to make it the way we want) so the real dividend is probably only something like 3.6%. Inflation is fairly low these days, perhaps 1-2%. So my return on this investment is in the 4-6% range. My after-tax mortgage rate is something like 1.6%, so I think it's merely okay as either a leveraged or unleveraged investment. But it's mostly a consumption item and only partially an investment.
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Re: How have your homes as investments done?

Post by SQRT » Tue Mar 15, 2016 4:33 pm

We own 4 homes. Have never viewed them as investments since they are solely for personal use(our's). To determine whether your homes have appreciated net/net you would need to consider the original purchase price plus all maintenance/upgrades, also taking into account the notional rent you have saved, and finally the current value. Most people think their homes have been great "investments" but if you do the analysis correctly, the gains are likely little better than inflation. My actual investment portfolio has performed much better.

TomCat96
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Re: How have your homes as investments done?

Post by TomCat96 » Tue Mar 15, 2016 4:57 pm

To everyone who responded, I greatly thank you.

To those of you saying my house is not an investment, Let me rephrase:

Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio.

So far the answers I seem to be getting indicate, in spite of the leveraged gain, after all the numerous expenses, a second home is likely to underperform a well diversified boglehead portfolio.

TomCat96
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Re: How have your homes as investments done?

Post by TomCat96 » Tue Mar 15, 2016 4:57 pm

TomCat96 wrote:To everyone who responded, I greatly thank you.

To those of you saying a house is not an investment, Let me rephrase:

Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio.

So far the answers I seem to be getting indicate, in spite of the leveraged gain, after all the numerous expenses, a second home is likely to underperform a well diversified boglehead portfolio.

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Re: How have your homes as investments done?

Post by tennisplyr » Tue Mar 15, 2016 4:59 pm

Bought my home in 1981 for $127,000 when the 30 yr fixed rate was 18.6%. Following several refinances we are thinking of downsizing. It is now worth close to $700k (no mortgage). I know there are constant disagreements here about 'home as investment' but after providing shelter, happy memories, tax deductions and financial appreciation, from this sample of one I made a great decision in '81. I'm not a major numbers cruncher but I'd do it all over again in a heartbeat. :?
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JDCarpenter
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Re: How have your homes as investments done?

Post by JDCarpenter » Tue Mar 15, 2016 5:12 pm

TomCat96 wrote:To everyone who responded, I greatly thank you.

To those of you saying my house is not an investment, Let me rephrase:

Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio.

So far the answers I seem to be getting indicate, in spite of the leveraged gain, after all the numerous expenses, a second home is likely to underperform a well diversified boglehead portfolio.
By definition, you are not diversified with a one/two house real estate portfolio; thus, returns are going to be volatile. Also, although I have not been a rental investor, it seems that those who successfully go that route apply different criteria to purchase selections than what most of us do for our primary homes.
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enebyberg
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Re: How have your homes as investments done?

Post by enebyberg » Tue Mar 15, 2016 5:16 pm

Purchase price: $250k 17 years ago
Current value as of last week: $848,775k :D

orca91
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Re: How have your homes as investments done?

Post by orca91 » Tue Mar 15, 2016 5:31 pm

TomCat96 wrote:To everyone who responded, I greatly thank you.

To those of you saying my house is not an investment, Let me rephrase:

Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio.

So far the answers I seem to be getting indicate, in spite of the leveraged gain, after all the numerous expenses, a second home is likely to underperform a well diversified boglehead portfolio.
Oh, gotcha... I thought you meant primary home

I became an accidental landlord a while back and sold that home last year, so.... :happy

Don't know which will underperform, but I've never had to replace the roof on my Boglehead portfolio. :happy

I'm not the landlord type though, so there's some personal preference involved.

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Re: How have your homes as investments done?

Post by Artsdoctor » Tue Mar 15, 2016 5:40 pm

TomCat96 wrote:Just wanted to ask the homeowners in here,

After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?

I guess the corollary to that would be, if you had cash today, would you use it to finance a home or allocate more to your portfolio?
Great question! At first glance, you'd think it's been a terrific investment. We bought it twenty years and it's worth three times the amount we paid for it, roughly. What's not to love?!?

But if you look more closely, it's just not that great:
1. Using CPI indices [for general purchasing power], there's been nearly a 50% increase from 20 years ago, so the inflation-adjusted return has to take that into consideration.
2. We did extensive renovations and the amount of improvements actually equals the original purchase of the house.
3. The mortgage is almost paid off but if you add the interest we will have paid, well, that's even more of an expense.
4. Forget about the upkeep and the real estate taxes, which are not inconsequential.

So all in all, there's nothing to brag about. However, we love the house, the location, we live 1.5 miles away from work (in LA that's worth an awful lot), and it's a pleasure to come home each and every night. Since houses on our street are currently renting for $12,000-$15,000 per month, we consider ourselves more than fortunate to have bought when we did just to have the convenience of location. It's possible we would have profited more from investing, but we would've had to live somewhere. And it is inconceivable that we'd be able to afford our own house at current market rates.

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Steelersfan
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Re: How have your homes as investments done?

Post by Steelersfan » Tue Mar 15, 2016 6:02 pm

House worth 60% more than what I paid for it 13 years ago.

Mortgage payments plus maintenance are a little less what I would have paid in rent each year.

There may be better investments but there are way worse too.

joebh
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Re: How have your homes as investments done?

Post by joebh » Tue Mar 15, 2016 6:11 pm

TomCat96 wrote:After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?
My home isn't an investment, it's an expense. There's no way to know how it has done until it is sold.
I purchased it for $89k about 30 years ago, comparables on the market today put it's price at about $370k +.
I never kept track of all the expenses involved with this home over the many years.
Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio.
I don't buy homes for investment. So if the only other option was a "3-fund Boglehead portfolio", I'd vote for that. (But I have other options, as everyone else does).
Last edited by joebh on Tue Mar 15, 2016 6:15 pm, edited 3 times in total.

TomCat96
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Re: How have your homes as investments done?

Post by TomCat96 » Tue Mar 15, 2016 6:13 pm

This is a superficial computation of the raw data that everyone provided here.


Thus Far our bogleheads have:

7.60% compounded GAIN
2.48% compounded GAIN
0.00% compounded GAIN
2.41% compounded LOSS
1.87% compounded LOSS
3.89% compounded GAIN
16.36% compounded GAIN
22.4% compounded GAIN
4.99% compounded GAIN
7.45% compounded GAIN

The largest gains however appeared over a short interval. 2 and 4 years.
Our biggest long term gainers averaged about 7.45%

This computation is incredibly superficial however because it does not take into account:
-down payment, the leverage of the mortgage, rent, taxes, maintenance costs.

Let us suppose however that one had the cash to simply purchase the house outright. We can take the mortgage out of the equation leaving:
the compounded gain being equal to the

rate + ((Rental Income - Upkeep Costs(tax, maintenance, hoa)/cost basis).

Using numbers from houses in my area, the second term is a miniscule, leaving a dividend no greater than half a percent.

From this, I conclude that after all costs, a house is likely to underperform a well diversified 3 fund portfolio.

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Re: How have your homes as investments done?

Post by JamesCletus » Tue Mar 15, 2016 6:27 pm

Most homes, not investment properties, are not a great investments as compared to putting the same amount of down payment, monthly deposits equal to mortgage payments, maintenance costs, etc into our favorite total market index fund over the same period of time. Sure there are boom areas of the country were people have done great but as a whole its just not a great investment as compared to other investments over the long run.

PLEASE UNDERSTAND, I am not saying you shouldn't buy a home. There are many great reasons to own a home. I am only saying that it is a life decision and it's smart to not consider the investment returns as the primary reason to buy. Sure we all don't want to loose money but you should buy a primary residence because it is right for you at this point in your life.

In most cases if you add the costs to buy the home, the interest on the loan, the insurance, the real estate fees, the taxes, and maintenance over the years its generally not a great return. Rarely do we track every transaction over the course of ownership. When you own you have a tendency to make it your own and do upgrades in addition to maintenance. On top of all this, imagine the amount of time you spend "working around or on the house" over the course of 10+ years. Drive around a neighborhood on a weekend and every other house has somebody doing yard work or some form of maintenance.

Again I want to clarify I am not against owning a home. If is important to you then I fully support it. I am not trying to be negative on home ownership as I think is a smart move for many people. I just feel a home isn't a great investment on paper compared to other investments. What is not on paper though is that we all need to live somewhere and a home is perfect for that.
Last edited by JamesCletus on Tue Mar 15, 2016 6:28 pm, edited 1 time in total.

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steve roy
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Re: How have your homes as investments done?

Post by steve roy » Tue Mar 15, 2016 6:28 pm

Here in sun-kissed California, the Mrs. and I have done well.

$65k purchase price, sold for $254K.

$318.5K purchase price, now worth $1.4 million.

Vegas house: bought for $318k, now worth $490k.

So the real estate holdings are UP. We're looking to sell the California property in 18 months. My main worry is an untimely belch from the San Andreas fault.

quantAndHold
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Re: How have your homes as investments done?

Post by quantAndHold » Tue Mar 15, 2016 6:50 pm

We have 2 houses.

House #1, 8.5% CAGR over 19 years ($225k to $1M)
House #2, 10% CAGR over 2.5 years ($700k to $900k)

House #1 has also been rented out for the past 2.5 years at a healthy profit. Before it was rented, we were living in it ourselves, and our monthly expenses were considerably less than a comparable rental would have been.

The entire time we've lived in house #2, our month to month expenses have been less than a comparable rental would be.

The houses have done significantly better than the rest of our investments over the time period that we have owned them. The leverage didn't hurt, either.

I would never have bought either house as an investment, but we got lucky and were on the right side of demographic trends (we bought a house in the city right at the beginning of the big migration from the suburbs back to the city). If I were investing money and thought I wanted real estate, I'd buy an apartment building or commercial real estate, not a single family home.

Levett
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Re: How have your homes as investments done?

Post by Levett » Tue Mar 15, 2016 6:52 pm

"Would you consider buying a 2nd home for investment or would you rather put your money in your 3-fund Boglehead portfolio."

Neither.

Lev

Jackson12
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Re: How have your homes as investments done?

Post by Jackson12 » Tue Mar 15, 2016 6:55 pm

TomCat96 wrote:Just wanted to ask the homeowners in here,

After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?

I guess the corollary to that would be, if you had cash today, would you use it to finance a home or allocate more to your portfolio?
Ours would fail as an investment. Bought ours, 3500 sq feet, super neighborhood, for $165...nearly 30 years ago. Might get $325K for it now. It is well maintained but that's just the way homes appreciate here...or don't appreciate.

If I added up all we've spent ( totally remodeled kitchen, bathroom, refinished wood floors, put down new flooring, replaced some Windows, replaced roof, etc) we have definitely not come out ahead

Even so, if it wasn't a money pit, we'd stay here. We love our home. But it is a losing financial "investment'.

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Re: How have your homes as investments done?

Post by LadyGeek » Tue Mar 15, 2016 7:04 pm

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MikeWillRetire
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Re: How have your homes as investments done?

Post by MikeWillRetire » Tue Mar 15, 2016 7:13 pm

An investment? My "investment" required me to take out a loan to buy the investment. Then I have to pay a tax on the value of the investment every year. Then I have to spend money to maintain the investment every year. And when I sell the investment, I have to pay a realtor 6% of the sales price.

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Re: How have your homes as investments done?

Post by mlebuf » Tue Mar 15, 2016 7:47 pm

Like most homes, our home has been a relatively poor investment. Bought it 20 years ago and today it's worth about double what we paid for it, according to Zillow. That's an average annual return of only about 3.5 percent before the costs of taxes, maintenance, mortgage interest, etc. are added in. On balance it was obviously a money loser.

However as a lifestyle decision, it has been an excellent choice. We have had the pleasure of living in a beautiful home with high ceilings, in a gated community and in the nicest part of town. It's paid for and I hope to remain here until I assume room temperature. If health or other reasons force us to sell it, we will get a huge cash windfall that will almost surely finance the rest of our lives.

When I bought the house, I had accumulated enough wealth to consider myself financially independent. My reason for buying the house was because I wanted to spend a nice chunk of my money where I planned to spend most of my time. From time to time I look around at where I live and think, "I must have done something right." It's great positive reinforcement. However as a wealth building investment, I don't recommend it. If you want to build wealth, do it the Boglehead way by living below your means and investing the difference in a low cost, balanced portfolio. It will get you to financial freedom a lot faster.

Yesterday, my friend and fellow Boglehead, Howard Donnelly sent me this great quote:
"If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money." - John D. Rockefeller
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Re: How have your homes as investments done?

Post by dm200 » Tue Mar 15, 2016 7:49 pm

Home purchased in 1978 for $77,000. Valuation, for local tax purposes, in 2016 is $619,000. No improvements or upgrades. Tax valuation in this locality does represent a value that probably does not overstate its market value to a significant degree, at least. In fact, sometimes homes sell for much more than tax valuation. That is about 5.6% per year, compounded.

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Re: How have your homes as investments done?

Post by mickroark » Tue Mar 15, 2016 7:59 pm

My home was purchased as an inflation hedge. So now I pay no rent, when all these young kids can't afford rent. A standard one room apartment in the city of Denver is renting for around $1300/mo. That is double what I paid as a mortgage payment. We all need a place to live so real estate is just another way to retire. That is why investment professionals always ask, what is your net worth excluding your home. So a home should not be part of your net worth.

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Re: How have your homes as investments done?

Post by mmcmonster » Tue Mar 15, 2016 8:46 pm

enebyberg wrote:Purchase price: $250k 17 years ago
Current value as of last week: $848,775k :D
Cool 7.5% interest. ;-)

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Re: How have your homes as investments done?

Post by LadyGeek » Tue Mar 15, 2016 8:58 pm

To those wondering how the interest rate is calculated:

Compound Annual Growth Rate

CAGR = (Future value / Present Value)^(1/Number of periods) - 1

CAGR = (FV / PV)^(1/N) - 1
mmcmonster wrote:Cool 7.5% interest. ;-)

7.45% = (848775 / 250000)^(1/17)-1
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Average Investor
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Re: How have your homes as investments done?

Post by Average Investor » Tue Mar 15, 2016 8:59 pm

Overall pretty well I think given the SF Bay Area market but if I had to do it again I might just rent. Numbers below do not include financing, tax or sales costs.

House 1
Purchase Price $155k
Upgrades $50k
Sale Price $425k
Time period 4 years

House 2
Purchase Price $800k
Upgrades $175k
Sale Price $1.65m (estimated)
Time period 15 years

Condo 1
Purchase Price $265k
Upgrades $15k
Sale Price $550k(estimated)
Time period 5 years
Tomorrow never knows.

Traveller
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Re: How have your homes as investments done?

Post by Traveller » Tue Mar 15, 2016 9:01 pm

Home #1 - made money. +20%
Home #2 - made money. +25%
Home #3 - lost money. -10%
Home #4 - we will see, but I got a great deal. :beer

Overall, I've lived in nicer places than I could have rented for the same money, plus I've made a bit overall on the appreciation.

greenfire
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Re: How have your homes as investments done?

Post by greenfire » Tue Mar 15, 2016 10:06 pm

My parents bought a house in 1953 for $22,000. They sold it in 2004 for $1,600,000.

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celia
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Re: How have your homes as investments done?

Post by celia » Tue Mar 15, 2016 10:31 pm

TomCat96 wrote:After all is said and done, how have your home investments done in terms of percentage returns after all the expenses, interest, mortgage, HOA fees, title insurance, maintenance, etc?
We've been in the same house for 40 years and it is now worth more than the original cost and all the above expenses put together. Since the year after we bought it, we watched house prices rise here and it was like all those payments were going into a piggy bank that we would get all of it back, plus some, when we sell or let the heirs have it. After about 5 years, we stopped thinking about it like this and just enjoyed being here.

Of course, the biggest factor here is location, location, location.
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Watty
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Re: How have your homes as investments done?

Post by Watty » Tue Mar 15, 2016 10:46 pm

For several decades my mortgage payment(along with other home ownership costs) has been less than renting a similar house. The return on that gets pretty hard to calculate.

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Re: How have your homes as investments done?

Post by penumbra » Tue Mar 15, 2016 11:31 pm

I'll play...
Bought our house 1979 for $252,500.
37 years later, worth approx $3,000,000.
We're in (very) coastal Southern California. So fairly good appreciation but probably not as good as the stock market over that time.
That being said, we love our home and hope they carry us out a long time from now. We'll never willingly leave, nor will we sell it. Probably one of our kids will take it. Taxes are only $5000/ yr., so even on an average income it will be affordable.

Is it an investment? Well, sort of. Could sell it and live elsewhere for less, so I guess we consciously decided to leave the money in it. Just because we like it doesn't mean it's not an investment.

Hank Moody
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Re: How have your homes as investments done?

Post by Hank Moody » Tue Mar 15, 2016 11:41 pm

First House

1990 Bot $365k
1995 Sold $255k

Second House


1996 Bot $737k
2016 FMV $2.9mm

I live in Los Angeles. Prices here are completely unhinged.
-HM

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LowER
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Re: How have your homes as investments done?

Post by LowER » Tue Mar 15, 2016 11:43 pm

.......
Last edited by LowER on Wed Dec 07, 2016 8:57 pm, edited 1 time in total.

Hank Moody
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Re: How have your homes as investments done?

Post by Hank Moody » Tue Mar 15, 2016 11:45 pm

Your average annual appreciation is similar to mine -- mid 6%.
penumbra wrote:I'll play...
Bought our house 1979 for $252,500.
37 years later, worth approx $3,000,000.
We're in (very) coastal Southern California. So fairly good appreciation but probably not as good as the stock market over that time.
That being said, we love our home and hope they carry us out a long time from now. We'll never willingly leave, nor will we sell it. Probably one of our kids will take it. Taxes are only $5000/ yr., so even on an average income it will be affordable.

Is it an investment? Well, sort of. Could sell it and live elsewhere for less, so I guess we consciously decided to leave the money in it. Just because we like it doesn't mean it's not an investment.
-HM

aj44
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Re: How have your homes as investments done?

Post by aj44 » Wed Mar 16, 2016 12:27 am

My wife lost 50k when she sold her home in 2012 (bought in 07), about a 15% loss. She had to turn it into a money losing rental until we had the non-retirement money to sell.

If I sold our current home today I would lose 40k (bought in 2002), about a 25% loss.

Real estate has been an anchor on the growth of our net worth, I would never consider it an investment or consider going down the path of owning a rental again. It's stocks and bonds from here on out besides our small primary residence.

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Misenplace
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Re: How have your homes as investments done?

Post by Misenplace » Wed Mar 16, 2016 1:45 am

Not including taxes, interest, insurance:

House 1- loved this tiny 1940 home, made 100k improvements, sold after 6 years, made 500k
House 2- hated this giant spec home, only landscaping improvements, sold after 6 years, made 350k
House 3- dream home built to our modest hearts' desire, moved in 9 years ago, no intention of leaving anytime soon, although it won't completely suit our needs in the coming years. We are probably underwater (FMV as compared to our costs) around 500k.

Overall, consider ourselves exceedingly lucky by being inspired to sell first two homes in frothy markets. It could have easily gone otherwise. Bottom line- home is not an investment. It's an expense- we would have done much better financially by not doing House 3 and investing in the stock market. However, it is home and no real regrets.

Bungo
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Re: How have your homes as investments done?

Post by Bungo » Wed Mar 16, 2016 2:20 am

I didn't buy my house as an investment, but I did wait until the housing crash to buy, which probably saved me about $200k versus buying a few years earlier. Bought four years ago for $650k, value is now approximately $1M.

I've spent about $60k in repairs/maintenance/remodeling. Mortgage interest, roughly $70k (ignoring tax deduction). Property tax, around $35k. I was paying about $35k/year in rent at the time, would probably be at least $50k/year now. So let's say total rent over four years would have been $170k.

I think that means I'm up by (1000-650) - 60 - 70 - 35 + 170 = $355, excluding tax deduction. Not bad for a $130k investment (downpayment). Of course the market can take away just as easily as it can give. That $1M value isn't real unless I sell and move somewhere much cheaper, aka retire.

IlliniDave
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Re: How have your homes as investments done?

Post by IlliniDave » Wed Mar 16, 2016 4:18 am

I live in flyover country. I plan to sell my house in the next 3 years and will be lucky to get 12%-15% more than I paid for it 18 years ago, and that will be half consumed by upgrade/repair work prior to selling. So as an investment it would be a clear loser given the sum total of interest expense, taxes, insurance, upkeep, and repair costs through the years. But for me it was a lifestyle expense that allowed my kids to grow up in a safe neighborhood with respectable schools. From that latter perspective I am happy.
Don't do something. Just stand there!

Caduceus
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Re: How have your homes as investments done?

Post by Caduceus » Wed Mar 16, 2016 5:52 am

I doubt that some of the posters are calculating their investment returns properly. Most homeowners have mortgages, so the return should take into account the effects of leverage. The return (or any losses) are magnified because of this borrowing. Homeowners should also take into account tax effects (the benefits of depreciation, tax-protected capital gains up to a cap, etc.)

However, the idea that one's home is an investment makes little sense and is a little more than an emotional attempt to justify a consumption decision. We all need some place to stay, but we don't necessarily need the house to have two extra rooms, or a big kitchen, etc. If maximizing your investment portfolio were the primary goal, and if real estate were really a good investment, the rational thing to do would be to downsize to the smallest comfortable place, and invest the savings in another piece of real estate that you rent out.

Think about it this way. When renters rent a bigger place, they don't deceive themselves into thinking they are "investing" the money. Renting a villa is more expensive than renting a small apartment away from the city center. Similarly, owning a big house (and consuming that imputed rent) is a consumption decision.

Renting property out allows you to capture both the dividends (in the form of rental income) and any capital appreciation. When you stay in your house, you consume the entirety of the imputed rent. Since the majority of returns from real estate comes from rents, most homeowners entirely consume their housing returns after adjusting for inflation.

Patricio
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Re: How have your homes as investments done?

Post by Patricio » Wed Mar 16, 2016 6:18 am

In 2005 I bought a coop in Queens, NY for 290k all cash, did major work, including gut renovation of kitchen, bath, which cost another 58k. Lived there for five and a half years, moved out and wanted to sell but couldn’t find a buyer (no one could get a loan back then) so I decided to rent it out. Rented for three years, sold in 2015 for 435k, but after closing costs (realtor, lawyer, transfer fees, flip tax) walked away with 391k. I also had a 15k tax hit because with the rental and some unrented months between leases I went just a bit beyond the two years in five rule to exclude capital gains (aargh!).

Total cost: 290k + 58k = 348k
348k is equivalent to 420k with inflation.
391k – 420k – 15k = -44k

So that’s a loss of 44k. But I had about a 1k per month positive cash flow from renting, so that’s 36k total.

-44k + 36k = -8k

So now I’m down to an 8k loss.

But for the time I was living in the apartment my housing costs were approximately 1k less per month than if I rented a similar place, so I saved 66k.

-8k + 66k = 58k

But the apartment was vacant for 18 months during renovation and when it was on the market, and this cost 15k carrying costs (coop maintenance fees).

58k – 15k = 43k

So now I’m at a 43k profit. Every years I owned the apartment I got a small deduction for interest and real estate taxes, but it’s too much trouble to calculate that. And I also sold stock to buy the place ten years ago, so I had some opportunity costs, but I can’t calculate those because I can’t say for sure what I would have done with that money had I not bought the apartment.

So maybe—probably—I would have done better financially renting than buying, and it surely would have been less hassle, but I don’t regret that I bought. One, because even though I bought at pretty much the top of the real estate bubble, I didn’t do too badly, especially compared with people in other markets that didn’t recover as well. Two, because with the renovations we did, we got the apartment we wanted. And three, because even though the whole experience sometimes made me want to tear my hair out, I got a real education dealing with contractors, the coop board, renters, and all the byzantine ins and outs of NYC real estate.

--Patricio

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