How have your homes as investments done?

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carolinaman
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Re: How have your homes as investments done?

Post by carolinaman »

Bought house in 1973 for $45,000. Based on CPI, it is equivalent of $240,000 today. Home would probably net considerably less than that, maybe around $220,000. Of course, any investment that only keeps up with CPI is not a good investment. However, I bought my home to live in, not as an investment.
Dantes
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Re: How have your homes as investments done?

Post by Dantes »

The financial rewards of home ownership are not very different from stock picking - its all time and location. Buying a home is, say, southern California, at the right time doesn't seem all that different from buying Apple at the right time. But if you bought a home in, say, Detroit, maybe that ended up looked a bit like buying Kodak.

Its not quite like stock picking if you have to have housing in a specific area at a specific time anyway; you've got to spend something for a place to live; maybe buying will turn out well, maybe not. If its not significantly more expensive than renting, and you know its for a long enough term for transaction costs to be not too significant on an annualized basis, then why not?
likegarden
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Re: How have your homes as investments done?

Post by likegarden »

We enjoy living in a comfortable house with 1/2 acre to do some recreational gardening, in an area with very good public schools in NY state. Our area is medium COL.
We bought our first house for $35k in 1974 and sold it for $62k in 1985 in NY state. We bought a house north of Boston for $150k in 1985 and sold it for $250k in 1987 (15k fixing). We bought a house back in NY state for $162k in 1987 which is worth now $270k. Basically, we had to live somewhere, did not pay rent and got some increase in value. We never lost money.
malabargold
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Re: How have your homes as investments done?

Post by malabargold »

Compare to the corresponding return in S&P, returns are
Typically miserable.
bradshaw1965
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Re: How have your homes as investments done?

Post by bradshaw1965 »

Flat after inflation since 2001 in close-in Atlanta suburb.
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warner25
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Re: How have your homes as investments done?

Post by warner25 »

So it sounds like most folks have no idea. The majority of replies in this thread are meaningless because they lack data for inflation, interest, taxes, insurance, and/or maintenance. I hear the same thing from family, friends, co-workers, etc. (i.e. non-Bogleheads) who own homes, but none of them even realize that they are missing critical data.
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dm200
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Re: How have your homes as investments done?

Post by dm200 »

Unlike almost all other "investments", a home is also where you live and if you did not purchase the home, almost certainly you would spend a considerable amount for rent. While there can be significant differences from one area to another, the initial costs of a mortgage, taxes, and other expenses are usually higher than renting, but over time - ownership costs tend to not rise as much as rent would. There may also be income tax benefits to ownership.
dbr
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Re: How have your homes as investments done?

Post by dbr »

warner25 wrote:So it sounds like most folks have no idea. The majority of replies in this thread are meaningless because they lack data for inflation, interest, taxes, insurance, and/or maintenance. I hear the same thing from family, friends, co-workers, etc. (i.e. non-Bogleheads) who own homes, but none of them even realize that they are missing critical data.
Indeed. I have not replied to this thread because after 33 years in the same house I can't imagine trying to tally a correct accounting of all the data required to answer the question. There are ambiguities as well, such as sweat equity, which is considerable.

One thing I can say is that the market value of the home has increased at roughly twice the overall rate of inflation since the time we purchased. That does not evaluate as an investment proposition.
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dm200
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Re: How have your homes as investments done?

Post by dm200 »

One additional potential benefit of having assets in a home could be that of "asset protection", since a home may have greater protection from creditors/judgment than many other assets.
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Artsdoctor
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Re: How have your homes as investments done?

Post by Artsdoctor »

DBR: Couldn't agree with you more. A lot of people see the estimated value of their homes and think it's a fantastic investment. When you add it all up, though, it's usually just about keeping up with inflation and that's about it (if you're lucky). It's an emotional attachment and, hopefully, you've enjoyed your purchase to the fullest.

If you're living in a high cost of living area, there's also the "problem" of capital gains taxes. I'm always surprised when someone sells his house after living it for 30 years and is overwhelmed by "the profit." Then tax day comes and about one-third of that profit is taken away (at least in California). It certainly teaches you to run the house as a business and keep track of every dollar that goes into increasing your cost basis.
joebh
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Re: How have your homes as investments done?

Post by joebh »

warner25 wrote:So it sounds like most folks have no idea.
Or that they just don't view their homes as investments, so don't care.
Ninegrams
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Re: How have your homes as investments done?

Post by Ninegrams »

My home has crawled back in value to something north of the price I purchased it at six years ago. It's not an investment to me, it's a lifestyle, a place to live and something to spend time & money working on. In fact, I am worried it will go up in value too much due to an expected influx of newcomers to the area, combined with a limited amount of developable land, which will detract from the quality of life that enticed me to purchase the property to begin with. I'd be more than happy to one day sell ( or have my beneficiary do so ) at a modest loss in order to continue to enjoy the situation I have. Life isn't always about financial gain.
dbr
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Re: How have your homes as investments done?

Post by dbr »

joebh wrote:
warner25 wrote:So it sounds like most folks have no idea.
Or that they just don't view their homes as investments, so don't care.
My home is certainly an investment though one I would not have made except as the most desirable choice for how to provide shelter, meaning a useful purpose as well as an investment.

Not being able to assemble all the data to get a return on it is not different from also not being able to assemble the data that would be needed to get return on a lifetime of investing either.

Also, knowing those numbers would not be useful and mostly is not very interesting either.
sk.dolcevita
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Re: How have your homes as investments done?

Post by sk.dolcevita »

bradshaw1965 wrote:Flat after inflation since 2001 in close-in Atlanta suburb.
For us too in Atlanta ITP (decent location with good schools). 1999 - present, about 2.5% return, that is, flat after inflation. I did subtract 7% off FMV to account for selling costs (realtor + minor fixes).

I know people who bought in 2009-2011 and are now sitting on 50%+ capital gains. However, since I intend to live here for many years, I am not complaining about lack of significant/comparable appreciation. I rather have lower property taxes now. In fact, recent increases in my tax assessments have injected worrisome uncertainty in our retirement financial planning.
Johno
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Re: How have your homes as investments done?

Post by Johno »

The price return on our house last 23 yrs is around 7% nominal. Interestingly I found a price for the house from 1940 and the return since then is in the same ballpark, a little higher in nominal terms, inner NYC area. As others have mentioned that's not the whole picture because we avoided paying rent all those years, yet also paid property taxes and other expenses. We bought the house for cash but a mortgage would be another complication. But we clearly paid less in property tax, maintenance and what would have been landlord paid utilities than we'd have paid in rent, for what my wife would have insisted on in terms of space for our family. And we've only put any serious improvements in recently, and only a small % of today's price*. So the marginal return of putting that money into house is more than the price appreciation: there's a significant additional net rent v own expense savings, order of a couple % I'd say. OTOH there's an unrealized cap gain much more than the exemption, but on the third hand I don't expect we'll realize it.

The problem is obviously that you can only know the return in hindsight. However we have (more recently) put a significant % of our portfolio into rental real estate in the same area. Not because it's 'better' than financial assets but because I'm not sure it isn't and it's a diversifier. And I have some time to look after some aspects of it, and a couple of our kids are in the RE business and can take care of other aspects.

*it also fuzzies up the math a bit though that we had a fairly serious fire years ago, and insurance paid for stuff that was really upgrade rather than repair. I never want to be 'lucky' like that again, but just in financial terms it's a reason we didn't have to do any capital improvement till recently.
leod
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Re: How have your homes as investments done?

Post by leod »

Where does one get the current value of their home?

Im using Zillow but it is not an accurate representation since it does not know any updates done to a home, and city assessment seems low
dbr
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Re: How have your homes as investments done?

Post by dbr »

leod wrote:Where does one get the current value of their home?
Im using Zillow but it is not an accurate representation since it does not know any updates done to a home
Basically by selling the home and after you have closed on the sale you will have a value. Until then the value is just an estimate subject to some uncertainty. Cost of selling probably should be counted against the value, though that is another of the small ambiguities that apply to this.

I have been in my home for over thirty years and the value has appreciated about fourfold. If there is a ten percent error in the current value, then I know my multiple is somewhere between 3.6 and 4.4. If I had my home for two years and it is up 10% with a 10% error on the value, then I hardly know what rate of appreciation is there.
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munemaker
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Re: How have your homes as investments done?

Post by munemaker »

I did not buy my home as an investment. I bought it so I have a place to live. I don't consider it part of my investment portfolio.
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Artsdoctor
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Re: How have your homes as investments done?

Post by Artsdoctor »

Overall, I think most of us are saying similar things. The bottom line is that most people see the purchase price of a home and the sales price of a home, and think what a fantastic investment it's been. In reality, it has not. If you're lucky, you've kept up with inflation and you've really enjoyed your home.

The reason I think this thread and others like it are important is because there are many people who will stretch themselves financially to purchase a very high-priced home at the expense of funding their retirement. It's not unusual for people in Southern California to feel as if their homes ARE their retirement, and this usually results in disappointment.

I realize it's a "first world" problem to have, but capital gains can be very unexpected for some and can really ruin the plans of many. The $250,000/$500,000 "allowance" is generous by most standards but if you live in your house for decades in this area, your capital gains can far exceed those numbers. Sometimes those tax figures can be pretty dramatic, both in size and in the degree of surprise.
WasabiOsbourne
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Re: How have your homes as investments done?

Post by WasabiOsbourne »

i'm in vancouver BC....

my grandparents house sold for $250k or so in 1990..... listed recently for $5MM.....

i think real estate has been good almost everywhere except "sand states" or portions of them. arizona, nevada, inland empire SoCal..

the best might be an irish entrepeneur i know... sold his house/estate in Dublin in 1970 for $50K or so. i think it sold pre credit-crisis for $35MM or so. might be exageration but the general idea is correct.
WasabiOsbourne
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Re: How have your homes as investments done?

Post by WasabiOsbourne »

it is good that you've basically lived in your house for free for the last 30 years as it's appreciated...

but one thing i see is that you at some point need to either downsize alot or move to much cheaper place to get $$$$ out of your home... oh, i guess reverse mortgage too...... but anyway, for many people it's their heirs who will get the financial windfall from the house. of course they may to plow it into expensive house themselves.

i live in vancouver BC which would surprise me if it's not top 2 or 3 most expensive cities in world. i know some rate it there... i think compariing it nyc, london, paris, HK you have to figure out what you are actually comparing.... all those places' central districts i think are much more expensive than vancouver.
Johno
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Re: How have your homes as investments done?

Post by Johno »

leod wrote:Where does one get the current value of their home?

Im using Zillow but it is not an accurate representation since it does not know any updates done to a home, and city assessment seems low
Zillow is IMO the best of the 'instant estimates' but none are entirely reliable if you don't otherwise know they're reasonable. In our case Zillow, which I'm assuming, is right on top of comparable sales from early-mid 2015, though it seems like things have gone up since, but few sales. I don't see that much uncertainty in the market value of our house, and it takes a pretty big variation to make a big difference in 23 yr CAGR annual % rate anyway.

Again on 'figuring in everything', some people seem to assume that would reduce the return. I would say it's almost always the other way around. If it were typically cheaper to pay rent than pay property tax and upkeep, it wouldn't make much sense to own rental properties. Sometimes rent can be so low a property is cashflow negative to the holder, but that's not the general case. By the same token as a homeowner your total return on money sunk into a house will generally exceed the raw price return, adding in the net benefit of not paying rent minus the fact you have to pay taxes, upkeep etc.you wouldn't if renting. That's without considering the concept that 'you'd get a smaller place if you rented' but that mixes in an apples v oranges behavioral irrationality aspect that's individual, which always makes it hard to objectively analyze anything. Anyway house raw price returns vary all over the map, and are not predictable in advance.
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Re: How have your homes as investments done?

Post by Fallible »

Paid-up homeowner here, but for anyone who thinks a house is an investment, I recommend reading Jonathan Clements's book, 25 Myths You've Got to Avoid, Chapter 19, "Invest In Your House" and Chapter 20, "Trade Up As Soon As You Can" (where he explains a main advantage of owning - imputed rent). Anyone who still buys after reading this (as I did) will be more likely to buy for the right reasons.
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protagonist
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Re: How have your homes as investments done?

Post by protagonist »

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?
Very well, though if I invested in stocks I would have probably done better. The last few decades have been generally remarkable for real estate. But if you look at the way it has performed vs inflation over the past century or so, most of the time it has barely kept up with inflation, and there were long periods where it lost value cf. inflation. http://observationsandnotes.blogspot.co ... -1900.html
TomCat96 wrote: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?
If I wanted a particular home and I knew where I wanted to live, and if I could afford it (meaning if I could pay cash or if I was quite sure I could pay off a mortgage in the relatively near future), I would buy it and hope it retained its value or appreciated. If I had a fair amount invested already in my portfolio but owned no real estate I would give additional thought to buying my home in order to further diversify. If none of these prerequisites were present I would allocate more to my portfolio. If I already had a mortgage, unless the rate was less than what I could achieve in a safe, conservative investment, I would give high priority to paying off my mortgage.
Last edited by protagonist on Thu Mar 17, 2016 2:54 pm, edited 1 time in total.
2015
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Re: How have your homes as investments done?

Post by 2015 »

Artsdoctor wrote:...It's not unusual for people in Southern California to feel as if their homes ARE their retirement, and this usually results in disappointment.

snip
Where do you get your data? Buying in just about any area in SoCal or NorCal rarely ends in "disappointment". I am 2 minutes from the 3rd most expensive zip code in the country and my place is worth 5x what I paid for it. Yes, right time, right place, much like buying Apple stock years ago.
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Meg77
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Re: How have your homes as investments done?

Post by Meg77 »

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.
I think your terminology is confusing folks. Buying a "house" or a "second home" implies that the purchase is primarily for your use and enjoyment. Most people responding here are talking about how their personal residences performed over time in investment terms.

If you are asking about purchasing or performance of "investment properties" then that is a different issue entirely. The reasons an investor might purchase a rental property are very different (or should be!) than the reasons they may purchase a home to live in, and the metrics for evaluating those investments are different (cash flow versus appreciation, for example). I own lots of rental properties that I would never live in myself, for various reasons - location, size, type of property (multi-family). Some of those cash flow amazingly well but have not really increased in value much over the years I've owned them.

If you're asking if you should buy a rental property then the answer can vary, and we don't have enough information to tell you. If you already have a few hundred grand or more in stocks/bonds, and if you can afford a 20% down payment, and if you don't mind spending a lot of time dealing with tenant issues and home maintenance projects, and if you live in an area where you can afford a rental around the median property value for your city/county, then I think a rental property might make a fine investment for you. In general.
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MnD
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Re: How have your homes as investments done?

Post by MnD »

Bought 1991 $108K Current $428K
CAGR 5.66%

We're very pleased with this and our overall cost of housing now.
2500SF on 3/4 acre and we spend less on housing than someone renting a really low-end 1 bedroom apartment is spending in our market.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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Artsdoctor
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Re: How have your homes as investments done?

Post by Artsdoctor »

2015 wrote:
Artsdoctor wrote:...It's not unusual for people in Southern California to feel as if their homes ARE their retirement, and this usually results in disappointment.

snip
Where do you get your data? Buying in just about any area in SoCal or NorCal rarely ends in "disappointment". I am 2 minutes from the 3rd most expensive zip code in the country and my place is worth 5x what I paid for it. Yes, right time, right place, much like buying Apple stock years ago.
It's wonderful when your house has appreciated. My point is that it's not unusual for people in my neck of the woods to view their houses as their retirement portfolio. They see their home values increase beyond what they ever imagined. Finally, they get to their retirement age with relatively meager investment portfolios but spectacular home equity. What do they do? Many are very unhappy to sell their homes but may do it begrudgingly because their investment portfolio can't possibly sustain their lifestyles. That $5M house that they bought in the 1970s is sold, but then they're actually surprised to find that they owe $1M in federal and state capital gains tax.

Is there a study? Of course not. But there certainly are a lot of my colleagues that are in their late 60s facing this exact problem. And my accountant certainly confirms this, although many of his clients are physicians. Of course, one could argue that doctors are notoriously bad at financial planning . . . I believe there are probably studies out there describing that phenomenon.

BTW: There's a BIG difference between liquidating appreciated stock and a house. With a stock, YOU control how many shares you're going to sell. With a house, it's all or nothing.
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Re: How have your homes as investments done?

Post by investnoob »

mmcmonster wrote:
enebyberg wrote:Purchase price: $250k 17 years ago
Current value as of last week: $848,775k :D
Cool 7.5% interest. ;-)
Shouldn't the return be calculated net of interest paid on the loan, and perhaps property taxes?
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Re: How have your homes as investments done?

Post by whodidntante »

Terribly. Considering maintenance, taxes, interest, insurance, and other sunk costs, I have definitely lost money. If I sold today, I think I would get about what I paid for it several years ago, minus 6% commission. And I've paid closing costs twice (I refinanced). As with other risky investments, It could be worse.

If I think about it as a place to live instead of an investment, it's done fine.
slickwillbo
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Re: How have your homes as investments done?

Post by slickwillbo »

Bought a new townhouse in 2009 from a builder that had gone bankrupt. The price is up about 55%, plus Uncle Sam donated $8k for purchasing the home, and Georgia threw in another $1800 (I live ITP Atlanta).

2009 just happened to be when I graduated from college, purchasing the house was no great foresight on my part. But it really makes me think that the housing market (where I am, at least) is bubbly again. It would also scare me if I were in the housing market again- which I might be within the next 2-3 years.
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Re: How have your homes as investments done?

Post by mattshwink »

Badly (though didn't buy as investment). Bought in April 2006 purchase price $450,000. Will be selling this year (not exactly sure yet when), hoping to get $419,000 (and we probably should - though we will see). I do not feel bad about it, though. One thing that drove us to buy is rents are high in our area, and we had not even been married a year yet and our rent was going to go up several hundred dollars. The mortgage we got was only a few hundred dollars more than the rent, but we benefited from the interest and property tax deductions.

Now we are making an offer (today or tomorrow) on a short sale. We are trying to get the house for 21% under what similar homes in the neighborhood go for (of course it needs work, but we are prepared for that).
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TomCat96
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Re: How have your homes as investments done?

Post by TomCat96 »

Thank you everyone for contributing. I'm a little surprised at how many posts this thread has received.

I went and ran some numbers to provide a little more clarity to the home as an investment equation.
The way I posed the math problem was essentially:

Where would you be if you bought a house and it increased in value with the assumptions listed below, vs if you took the money and put it into a portfolio. For example, your 60k downpayment, and subsequent 36k/yr payments are invested annually.

In the following financial formula, I make many assumptions.

House rises at 4.5% CAGR on original price of home.
House: 660k
Mortgage: 600k (10% downpayment)
HOA: 2400/yr
Difference in Tax Deduction between Itemized vs Standard in the first year: 10500
Annual Mortgage: 4.5%, 36481 per year.
Property Tax: 5500/yr
Maintenance" 2000/yr
Theoretical Rental Income per year: 12000.
Estimated Bogle Portfolio CAGR over 30 years: 9%

At the 30 year mark,
"value" of the Home: 2.471 MM
value of your portfolio: 3.996 MM

The numbers change dramatically though even altering the assumptions a little bit.
For example, assuming now 20k theoretical rental income/ yr, the difference is 2.471MM to 2.906 MM.

The spreadsheet to take all this into account is actually quite complicated. Simplifying assumptions can be made at the 30 year mark, when the equity of the home is equal to the value of the home. Furthermore, because money is fungible, I simply applied any hypothetical incoming rent to be subtracted against the cash outflow that would otherwise be placed into the portfolio. That mathematical treatment should be fine because theoretically, one could take the cash received from rent and simply place that into a boglehead portfolio. Thats why you see the odd result of an increase in rent resulting in a decrease in the portfolio value.


Overall my conclusions are as follows:
You have to be "lucky" to match the performance of a boglehead portfolio over a 30 year time frame.
It's certainly doable, and has been done before. Even somewhat optimistic assumptions in favor of the property is likely to lose out against the portfolio.

----
deficiencies of the above math equation:
-annual increases in rent and property taxes are not assumed.
-the marginal benefit of getting itemized deductions if one is currently taking standard deductions will change over time based on the mortgage amortization
CWhea1775
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Re: How have your homes as investments done?

Post by CWhea1775 »

I would answer with a general observation. I am 62 years old. Over the course of my life I have seen people of more or less average incomes become wealthy in two ways. One is the Boglehead way of living below your means, long term diversified investing, etc. The other is investing in property. Wealth producing property investments I have seen succeed can also be divided into two methods; One is purchasing (relatively) large parcels of land more or less at the edge of development and holding it long enough for development to reach the property. The other is the systematic purchase of more and more rental units over time. The latter is the more common in my experience, and requires a whole lot of work - way more than I want to put in.

My guess - and that's all it is - is that one rental unit is either going to be more work than you like for an average return or else just the start of your own real estate empire.
Johno
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Re: How have your homes as investments done?

Post by Johno »

investnoob wrote:
mmcmonster wrote:
enebyberg wrote:Purchase price: $250k 17 years ago
Current value as of last week: $848,775k :D
Cool 7.5% interest. ;-)
Shouldn't the return be calculated net of interest paid on the loan, and perhaps property taxes?
A return calculation that includes only the price change of the house and the expenses of owning it is implicitly assuming you'd have been homeless otherwise and indifferent to that condition. :D A complete calculation indeed includes expenses, but also credits the rent you didn't have to pay because you owned. That in the great majority of cases makes the total return higher than the quick and dirty price return, not lower. If there's a mortgage you have to count interest, but if the effective mortgage rate is less than the unlevered return, that increases the return further. I figure the net rent/own cost difference in our case to be order of 2-some%, so since our price return has been close to that in the post, the all in return on money in our home has been close to double digit nominal, unlevered.

This has been covered in earlier threads: RE appreciation in some areas, like NY area in our case, has generated returns comparable to the stock market in the last couple of decades, higher if the home was levered and the stock position wasn't. But that's in the rear view mirror, for both actually: 10-ish % returns may not be anywhere close to replicated by RE in our area in the future, nor actually is there any gtee that future stock returns will be anywhere near that either. Stocks alone are more diversified. But there's no law saying you have to invest in just stocks or just a home, or moreover that you can't invest in home, stocks, investment RE, and other stuff.
white_water
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Re: How have your homes as investments done?

Post by white_water »

550 % over 17 1/2 years. Retired, sold, downsized to a LCOL area, banked the difference. Sometimes you just get lucky.
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Leif
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Re: How have your homes as investments done?

Post by Leif »

Better then bonds, but not as good as stocks.
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Re: How have your homes as investments done?

Post by edge »

Price appreciation has been fine but taking into account maintenance, improvements, taxes, then total return is probably in the 1-2% range.
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Re: How have your homes as investments done?

Post by Leeraar »

Our homes have been terrible "investments", but we never regarded them as such.

First, bought for $66k in 1980, sold for $95k in 1994.

Second, bought for $225k in 2004, now worth $250k, maybe.

Factor in inflation and expenses, not good deals at all. But, you need a place to live.

The best thing is, the second house is lakefront, a hidden gem. We never sank untold amounts into a second home or cottage or tmeshare or beachfront condo.

And, by the way, owning property that you do not live in is a job. It is not an investment.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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timboktoo
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Re: How have your homes as investments done?

Post by timboktoo »

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?
I bought my home in 2005 for $87,950. Today, it's probably worth a little over $90,000. My home is in a flood zone in a part of town that's on the border of undesirable. It's cheaper than the average home in Louisville.

Investment-wise, I have lost more money in closing costs, insurances and taxes than I have gained and if I had to pay 6% to sell at the value I quoted above, then I would lose even more. But compared to renting, I came out ahead. My mortgage will also be paid off very shortly. So I can begin to save to purchase my next home in cash.

When I bought this house, I had no investments and no real knowledge about investing. If I had to do it all over again, I still would have made the same decision. At the time, this was the most expensive house I could afford, making only $30,000 a year and having nothing down on the loan. My portfolio is worth more than my home today. By purchasing such an inexpensive home, I was able to rent out a room in the home to help pay some of the mortgage for a few years, still have plenty leftover to invest and do whatever hobbies interested me and build equity as well.

My philosophy about houses is that you should only buy one if you want to live in a house and you plan to stay there for several years. It's a lifestyle choice, not an investing decision. A home should also be a place that brings you peace. If you don't feel peace from your home, you're in the wrong place.

- Tim
ParkersPaPa
Posts: 101
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Re: How have your homes as investments done?

Post by ParkersPaPa »

whodidntante wrote:Terribly. Considering maintenance, taxes, interest, insurance, and other sunk costs, I have definitely lost money. If I sold today, I think I would get about what I paid for it several years ago, minus 6% commission. And I've paid closing costs twice (I refinanced). As with other risky investments, It could be worse.

If I think about it as a place to live instead of an investment, it's done fine.
I do the latter. I would not surrender my memories here for anything.

:sharebeer
ausgenf
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Re: How have your homes as investments done?

Post by ausgenf »

We bought our house for $194K in 2005 and tried to sell it recently for $175K, but could not find any taker. So we have decided to just stay put. We have not upgraded the house in any big way, but we have spent plenty of money on repairs and maintenance (new roof, new A/C, new paint job, new appliances, new retaining wall and fence in the backyard, etc...). I am so glad that we did not overspend on housing. And we are fortunate that local property tax rates are low. But still, taking into account carrying costs, transaction costs, interest expenses on the mortgage, time spent working on the property, etc... that house would be my worst investment ever. But as a place to call home, it's been good.
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22twain
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Re: How have your homes as investments done?

Post by 22twain »

We bought our house for $70K in 1988. It probably could have sold for at least $80K easily, but the owner liked us and didn't want the hassle of dealing with an agent and several visitors; she sold it privately and we heard about it by word of mouth.

Lately, other houses in the neighborhood have been selling in the $180K ballpark. The inflation factor since 1988 has been about 2x. So we've pretty much kept up with inflation, after allowing for the money we've spent on renovations.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
FCM
Posts: 222
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Re: How have your homes as investments done?

Post by FCM »

My wife and I purchased our first and only home in 1977 for $72K in Northern Virginia outside of DC. Similar models have recently sold for about $700K. We still live in the same house, but we did a major expansion/renovation back in 2001 that cost about $250K. The house is now worth about $900K. Obviously, the return on investment would have been better if we hadn't spent the $250K on the expansion/renovation, but we wanted to stay in our house and "age in place."
Beth*
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Re: How have your homes as investments done?

Post by Beth* »

The real estate market is very local. There are a few areas of the country where real estate turned out to be a terrific investment: Silicon Valley in California, large parts of Manhattan and Brooklyn, etc. In most of the country, the value of a house can be expected to keep up with inflation, but not do much better. In some parts of the country the value of housing has declined.

Owning a home is a way to stabilize housing costs: rents generally go up over time but payments on a fixed-rate 15 or 30 year mortgage do not. Property taxes may increase over time, but they seldom increase at the same rate as rent. It's also a forced form of savings which some people need (assuming they don't use it as a piggy bank and borrow against home equity): part of each mortgage payment goes to paying down principal. For many people their home is their biggest asset when they retire.

In my opinion, a house should be thought of as a place to live and provide some stability in life, not as an investment. I don't want to be a renter and have a landlord regulate what color I can paint rooms, what I can plant in the garden, etc. I've never done an accounting on my financial position with my house (change in value in relationship to inflation and what we put into it, cost of living here versus the cost of renting a similar place, etc.) but my best guess is that we have broken even financially. And, we've had a great place to live and raise a family which is why I bought the house in the first place.
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Ice-9
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Re: How have your homes as investments done?

Post by Ice-9 »

jjface wrote: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!
Similar story for us. Six years after purchase, Zillow says the value is up very slightly, and other real estate estimation sites say we're up $50k or so. Meanwhile, we've spent several thousand on things like new furnace and AC, new appliances, painting, replacing old Orangeburg sewer line with PVC, tree removal... But our mortgage payments are pretty darn close to what we would have paid for rent, and next year we'll be done with mortgage insurance so we'll actually be paying less.

In answer to the question of investing in a 2nd home or three-fund portfolio, I personally would go for the portfolio.
mac808
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Re: How have your homes as investments done?

Post by mac808 »

My aunts and uncles all live in California and almost all of them made more money from real estate appreciation than from their w2 income over their working years. This phenomenon seems unlikely to reoccur and sometime I wonder how that will affect the future.

When comparing returns to the stock market keep in mind that most people buy with 20% or less down and finance the rest for about what rent would cost them anyway.
Teague
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Re: How have your homes as investments done?

Post by Teague »

This "investment" of mine has been absolutely horrible. Estimated capital appreciation of 23.5% over 16 years since I bought it. It has produced no dividends. It has exhibited great volatility, with periods where it was worth less than what I paid for it. Expense ratio (taxes, insurance, utilities, maintenance) are high at 7% annually. A back-end load (real estate commissions, and other sales costs) is estimated at 8%. Terrible investment.

However, this terrible investment has been a wonderful place to live. :happy
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CT-Scott
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Re: How have your homes as investments done?

Post by CT-Scott »

As others have stated, there are too many other costs involved in owning/mortgaging a home such that it's not as simple as just looking at the initial purchase price and later sales price. I'm now in my 4th house and I guess I'm a bit of a grump because I look at it as a bit of a money pit. We bought this one in 2008 when home values were on the decline, but apparently still had a ways to go. This one was in need of a lot more repair than we appreciated at the time and despite house values being on the decline, the inventory at the time was quite low. Had we been able to wait 6-12 months more, we could have probably gotten a lot nicer home for less money.

Today, values are up again, but I don't believe that our house would sell for much more than what we paid for it in 2008 and since then we've replaced the roof, repainted it (and had to do a good amount of clapboard siding replacement as part of that), paved the driveway, removed a ton of trees, added a water filtration system (well water) to deal with issues there, replaced the well pump, refurbished the deck (now in need of further refurbishing/restaining), and spent $5k+ in some recent remodeling involving replacing a couple of formica countertops with granite, new sinks, lighting, etc. And I'm sure I'm missing a ton of other smaller stuff. And much of the house still looks dated IMO, there are several other costly repairs still needed, and the house can be drafty and expensive to heat in the winter (the mild winter and low propane prices this past winter were a pleasant surprise).

If I had my choice, I'd be looking to move again to something smaller in CT, but also more modernized. My wife would prefer to leave CT, and hates the moving process so much that she has zero desire for any interim move that keeps us in CT, so I think we're stuck staying in this house for now. As a result, I'm trying to make the best of it and I try to focus on the best bang-for-the-buck improvements.
Valuethinker
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Re: How have your homes as investments done?

Post by Valuethinker »

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?
Oh homes have been far and away my best investment.

I have owned 1 apartment flat, and 1 house. The house I live in now is worth c. 6.5x what I paid for the flat. I have not injected a huge amount of equity (other than mortgage repayment) into that.

If you add in all the money that I spent on renovations and repairs to these Victorian properties, the numbers don't look so good. But capital gains taxes on homes are tax free here, and whilst there is a steep Stamp Duty (5%+) to buy a home, property taxes are very low by North American standards (I pay around 0.25% of the value of the property).

That's what you get for buying a place to live in the middle of a housing boom. From the bottom in 1994, London homes have gone 5x, and I know people who have done 10x.

Bottom line: invest in stocks and bonds. A home is for living in.
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