Is home ownership a whole life policy?

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bogglizer
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Is home ownership a whole life policy?

Post by bogglizer »

Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
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Horton
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Re: Is home ownership a whole life policy?

Post by Horton »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
I can easily buy term life. For shelter, I can rent - but there are undesirable aspects (e.g., increasing rent, moving often, having a landlord, etc.). My personal solution has been to buy a house and stay for as long as possible to avoid the fees associated with moving.

The process to buy/sell real estate is definitely ripe for disruption.
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Nate79
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Re: Is home ownership a whole life policy?

Post by Nate79 »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
Your description of a home could actually pertain to almost any asset - car, lawn mower, farmland, tractor, etc. The asset has a value (goes up or down), and may have a use (income, transportation, etc). We often pay commissions to sale people for purchasing many things in our lives and most of us have a strong drive to reduce costs as much as possible. For example for cars people spend a lot of time and energy to get that commission as low as possible - by using services like Costco, by playing one dealer off another, etc. In the case of home purchasing there is an entrenched industry of realtors who are deeply pushing against the consumer populace desire to reduce costs.

But in the end when you can separate 2 intertwined items and reduce cost it may be better. In the case of Whole Life it is extremely easy to reduce your costs significantly (buy term, use index funds, etc) as well as separate the make simpler the products - buy index funds and term insurance separately. Build wealth and no need to pay extra for permanent insurance.

Just because buying a home has commissions and is an asset that may appreciate but you live in it doesn't excuse Whole Life from being a horrible product that can be replaced by lower cost and simpler options.
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Brianmcg321
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Re: Is home ownership a whole life policy?

Post by Brianmcg321 »

I've never incurred big expenses buying or selling a house. FSBO.

I don't consider my home an investment. It's where I live. I don't consider insurance an investment either. In 5 years my home will be paid off. I will be 51, living "rent free" for the rest of my life.
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ChowYunPhat
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Re: Is home ownership a whole life policy?

Post by ChowYunPhat »

An interesting take WL vs. home ownership although I think the comparison quickly falls apart. While almost everyone would consider shelter a "need", no one would consider a WL policy a need. The next consideration to shelter is buying vs. renting. There are trade offs to both which are mostly obvious. I choose to own so I can change and adjust my home without oversight and I value my privacy. Maybe the total cost of ownership (vs. renting) will be higher when we sell, maybe not. Real estate markets are funny that way.

Most importantly, I can accomplish pretty much anything a WL policy can do without actually using a WL policy.
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Re: Is home ownership a whole life policy?

Post by knpstr »

Is home ownership a whole life policy?

No.
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chevca
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Re: Is home ownership a whole life policy?

Post by chevca »

A primary home isn't an investment. It's a lifestyle choice. Apples and oranges to compare it to a whole life policy.
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Re: Is home ownership a whole life policy?

Post by alfaspider »

Unless you are purchasing rental properties, housing is consumption. Any gains on real estate are entirely incidental to the shelter your are purchasing.
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Re: Is home ownership a whole life policy?

Post by willthrill81 »

knpstr wrote: Mon Jan 20, 2020 12:54 pm Is home ownership a whole life policy?

No.
:thumbsup

They aren't even apples and oranges since at least those are both fruit.
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Re: Is home ownership a whole life policy?

Post by garlandwhizzer »

I own my home outright, no mortgage, and have no debt other than monthly credit card bills which I pay on time. I think of my house as my long term care policy. At some point in time, I will sell it, get back all my principal cost plus all costs of home upgrades/improvements tax free, plus up to $500,000 in LTCG for a couple federally tax free. That will be a lot of money that I will invest conservatively and use it as a source for long term care or health related costs due to aging. I can use that money like an annuity or LTC policy payouts and spend money as needed, when needed, in any amount needed, and for whatever purpose is needed. A lot more flexility than LTC or annuity payments. The nice thing about this is that the house value is expected in my area to at least keep up with inflation, probably do better than that, which IMO is preferable to a long term care policy or annuity with fixed payouts, non-inflation adjusted. Also it you have a long term care policy and you turn out not to need long term care all those premiums costs which you paid for in real dollars in real time go down the drain. Statistics suggest that about 30% of those reaching 65 don't ever need or use LTC so for that group it's a total loss. Likewise for annuities if you die sooner than expected, your premium payments exceed your payouts.

The more you handle and manage financial decisions on your own the less you will in fees and expenses to the financial industry as long as you're competent to do this. For some LTC and annuities are great choices, no doubt. It is possible that my outlook will change in the future, but that's how I see it now. I am now 72 and don't anticipate this need anytime soon, but one never knows.

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Re: Is home ownership a whole life policy?

Post by Blue456 »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
Home is only minimally protected from creditors. Usually your life insurance or annuity has much higher protection.
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alex_686
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Re: Is home ownership a whole life policy?

Post by alex_686 »

I am trying to pull apart why you are mixing up these 2 different types of investments.

I think that the answer to your question if that home ownership is a better investment than annuities in terms of opportunity costs. The correct way of looking at this is home ownership verse renting.

The extra costs and complexity between home ownership and renting are know and well understood. For example, home ownership is definitely a investment. But all of the training manuals I have seen on this subject suggest that financial reps suggest glossing over this part to clients because it is a very complex and emotional subject, but the impact of cognitive failures tend to be minor.

Annuities are a different bag. I used to work for a annuity company - operations, not sales - and I would have a very hard time dissecting a policy to figure out what I was buying, let alone if I was getting a good value.
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chevca
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Re: Is home ownership a whole life policy?

Post by chevca »

alex_686 wrote: Mon Jan 20, 2020 1:27 pm I am trying to pull apart why you are mixing up these 2 different types of investments.
To justify a whole life policy they purchased?
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firebirdparts
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Re: Is home ownership a whole life policy?

Post by firebirdparts »

So, how is residential home ownership any different?
Home ownership is an expense. Expenses are not the same thing as investments.
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Re: Is home ownership a whole life policy?

Post by willthrill81 »

firebirdparts wrote: Mon Jan 20, 2020 2:09 pm
So, how is residential home ownership any different?
Home ownership is an expense.
Usually, but not always. After accounting for all expenses, we came out slightly ahead on both of our last two homes.
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JoeRetire
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Re: Is home ownership a whole life policy?

Post by JoeRetire »

bogglizer wrote: Mon Jan 20, 2020 12:00 pmSimilarly, home ownership couples investment to housing and has large expenses when buying and selling.
Home ownership is not an investment. It's a housing choice.
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Re: Is home ownership a whole life policy?

Post by barnaclebob »

I cant live inside a whole life policy.
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Re: Is home ownership a whole life policy?

Post by Stinky »

I can walk away from a whole life policy. Maybe I’ll collect a little cash value, maybe not.

It’s a lot tougher to walk away from a house.
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Re: Is home ownership a whole life policy?

Post by bikechuck »

firebirdparts wrote: Mon Jan 20, 2020 2:09 pm
So, how is residential home ownership any different?
Home ownership is an expense. Expenses are not the same thing as investments.
I disagree with this; I do agree that there are carrying costs to owning a home but often they are less than the cost of renting.

In my case and in most cases that I am aware of people that own their homes for 7 years or longer often (but not always) see appreciation in the value of their homes keeping up with or exceeding inflation. So while it is debatable about whether they are an investment, homes are an asset rather than an expense.
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Re: Is home ownership a whole life policy?

Post by beernutz »

You can look at homes as investments but you are also trying to time the market when you buy one which can result in disaster.

Just ask the gentleman I bought some river property from in 2018. He bought it in 2007 for $50k more than I paid him.
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Re: Is home ownership a whole life policy?

Post by mdavis6890 »

An important point is that even though we often talk about whole life as an investment (whether you think it's a good one or not) - it's NOT an investment. It's an investment account. It just holds investments that you are making or that someone else is making on your behalf - just like an IRA or brokerage account or whatever. It just has super high fees and other stupid stuff that make it a dumb way to hold these investments, and there's certainly no reason to have an investment account tied to life insurance.

An investment is something which creates enduring value that you hope will be greater than the value it took to create the investment. Even though we don't always consider it as such, a house fits this description. I creates the enduring value of a place to live, which we hope is larger than the value we consumed in building or buying it. Note that by this description, gold is not an investment, because it does not create enduring value. You cannot eat it or live in it. Gold is an asset though, because it does have market value.
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Re: Is home ownership a whole life policy?

Post by arcticpineapplecorp. »

Brianmcg321 wrote: Mon Jan 20, 2020 12:40 pm I will be 51, living "rent free" for the rest of my life.
maybe, if you don't have property taxes. for those who live in states with real estate and school taxes homeowner's may own the home, but they are merely renting the land on which their home sits from their local taxing authority. where i sit people never say those costs go down, only up. yeah, it's still overall cheaper at that point than renting (for a comparable place) but you're on the hook for repairs. renters aren't. it's not apples to apples.
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Re: Is home ownership a whole life policy?

Post by nisiprius »

Marrying a spouse couples together otherwise unrelated financial issues, and incurs large expenses getting into or trying to get out of the relationship. So how is a marriage different from a whole life policy?

They're completely different, like apples and sphygmomanometers.
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Re: Is home ownership a whole life policy?

Post by Independent George »

I think most people here would say that home ownership is most definitely not an investment, and it is a mistake to think of it as one.

There are many good reasons to buy a home, but the expectation that it will appreciate in value or provide capital later in life is not one of them.
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Re: Is home ownership a whole life policy?

Post by Nate79 »

A home is an asset. Whether it appreciates, depreciates, has expenses or not it is still an asset with value. Whether you live in it, rent it out, or leave it empty it is an asset.
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Re: Is home ownership a whole life policy?

Post by Theoretical »

Blue456 wrote: Mon Jan 20, 2020 1:20 pm
bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
Home is only minimally protected from creditors. Usually your life insurance or annuity has much higher protection.
http://www.assetprotectionbook.com/foru ... 142&t=1566
Except in Texas and a few other states.
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Re: Is home ownership a whole life policy?

Post by gr7070 »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm (a) they couple together (otherwise unrelated) investment and life insurance
That's a straw man. That in and of itself is not a negative. There needs to be a tangible negative associated with that specific reason and there's not. There mere coupling has no impact itself.

They could be coupled and if they had low fee and huge returns they would be considered great investments. They have the opposite and *that* is the reason they're considered horrific.
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Re: Is home ownership a whole life policy?

Post by Financologist »

If you want to look at the merits of investing in real estate vs. "investing" in a whole life policy, then best to use rental real estate and not owner occupied real estate for the comparison.

Then you can examine the cash flows (expected or realized from past policies/rental properties) of each and make a projection of comparative performance.

Home ownership is best compared to the alternatives of home ownership. Assuming shelter is a requirement.. is owning or renting better? You can base this on the expected value (financial and personal) over time.
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Re: Is home ownership a whole life policy?

Post by alex_686 »

Financologist wrote: Mon Jan 20, 2020 10:58 pm If you want to look at the merits of investing in real estate vs. "investing" in a whole life policy, then best to use rental real estate and not owner occupied real estate for the comparison.

Then you can examine the cash flows (expected or realized from past policies/rental properties) of each and make a projection of comparative performance.

Home ownership is best compared to the alternatives of home ownership. Assuming shelter is a requirement.. is owning or renting better? You can base this on the expected value (financial and personal) over time.
Or you could compare home ownership with other investments. Just be sure to include “imputed rent”. This is the rent the property would generate if rented out, representing the opportunity costs of you living there.
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Re: Is home ownership a whole life policy?

Post by firebirdparts »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee.
Let me just further say that as a fundamentalist I totally disagree with this in every way. Whole life insurance is a financial product. You give them money, they give you money. No buildings or other goods and services are provided. It is a bad product simply because of the amounts of money that ultimately change hands.

This stuff above is just ancillary water cooler jibber jabber. Somebody may have asked "why does this perform so poorly as an investment?" and somebody gave answer a at the water cooler. Then somebody said "well, then, why do so many people have these bad products?" and then you would have to give answer b.

A product that brilliantly meets two unrelated needs would not have to stink. It could be good. you could use an umbrella for a walking stick and you might like it.
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Re: Is home ownership a whole life policy?

Post by jeffyscott »

alex_686 wrote: Tue Jan 21, 2020 7:32 am
Financologist wrote: Mon Jan 20, 2020 10:58 pm If you want to look at the merits of investing in real estate vs. "investing" in a whole life policy, then best to use rental real estate and not owner occupied real estate for the comparison.

Then you can examine the cash flows (expected or realized from past policies/rental properties) of each and make a projection of comparative performance.

Home ownership is best compared to the alternatives of home ownership. Assuming shelter is a requirement.. is owning or renting better? You can base this on the expected value (financial and personal) over time.
Or you could compare home ownership with other investments. Just be sure to include “imputed rent”. This is the rent the property would generate if rented out, representing the opportunity costs of you living there.
I would determine the opportunity cost based on what the return of an alternative (passive) investment, with comparable risk, would be. IMO, that "comparable risk" would mean a return equal to or less than current mortgage rates (3.75%). I might consider Vanguard long-term investment grade as an equivalent risk and that has SEC yield of about 3% now. Then add 1% for maintenance and 1.5% for property tax and insurance, in my case, and total annual cost is 5.5-6% of the value.

But then, I would also assume that the house will increase in value at about the rate of inflation. So I think that means that my net opportunity cost is the difference between 0% real and, the alternative of maybe 3-3.75% nominal? And so total net annual cost that I would compare to renting would be maybe 4-4.5% of the value?

If I did not live in my house, I would not own it, since I do not want to be a landlord. If you do use the potential rental income, then that should be discounted based on the amount of time you would spend dealing with that or based on the cost of hiring someone else to manage the property.
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grog
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Re: Is home ownership a whole life policy?

Post by grog »

In terms of financial exposure, I would view them as pretty much complete opposites.

When you buy a WL policy, you are buying a nominal payout that statistically usually won't be paid until many decades in the future. When you take out a mortgage, you're on the other side of a nominal debt. Inflation badly erodes the value of WL whereas it's a great boon to the mortgage holder.
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Re: Is home ownership a whole life policy?

Post by wolf359 »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and (b) they pay the agent a big fee. Similarly, home ownership couples investment to housing and has large expenses when buying and selling. So, how is residential home ownership any different? Are there arguments for home ownership that are not just as 'valid' coming from an insurance salesman?
The two are not comparable.

Life insurance is usually sold, not bought. People don't want to think about issues relating to dying. The salespeople have an incentive to sell the product that pays them the most, not the one most suitable to the client.

Personal residence purchases are usually an emotional decision, not an economic one. People have memories in a home, not just their finances. They are often blind to the secondary costs because there is a bias towards home ownership.

Personally, I do not consider whole life policies satanic. Whole life policies should be used where there is a permanent life insurance requirement. Read this excellent blog post by the White Coat Investor listing those cases (note that these very specific circumstances don't apply to most people): https://www.whitecoatinvestor.com/appro ... insurance/

In most cases, term insurance should be used to address life insurance requirements until they are no longer needed. Whole life is often sold AS the insurance product, and that's usually inappropriate. Screwdrivers make terrible hammers, but not if you're trying to get something unscrewed.

On the other hand, the best approach to home ownership is to consider it a housing expense, and not an investment. People don't need to be convinced to buy a house. They usually have to be convinced not to buy too much house. (Compare that to the rental market. Most people don't have to be convinced not to rent more house than they need.)
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Re: Is home ownership a whole life policy?

Post by capjak »

Houses are definitely not an investment.
They are very illiquid, usually have costs to purchase and costs to sell.
Once they are paid off you continue to pay "rent" in the form of real estate taxes.
If you do not maintain them their value decreases.
They are high cost to maintain.
They have high costs to insure/utility etc.........

Where I live the cost of real estate tax is 3% of the home value every year for now but it could increase and does of course with inflation as the tax assessor adjusts the assessed value (of course you can contest and sometimes you get a modest reduction), it is definitely not "rent free".
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Re: Is home ownership a whole life policy?

Post by Dead Man Walking »

I don’t view home ownership a whole life policy; however, my heirs may view it as such since they will benefit from my investment in my home when I die. One argument that often appears in threads involving home ownership is that maintaining a home, paying real estate taxes, etc. is more expensive than renting. The owner of rental property pays all of those expenses and makes a profit. Consequently, I don’t understand how renting could be cheaper than home ownership. I agree that home ownership is a lifestyle choice.

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Re: Is home ownership a whole life policy?

Post by chevca »

It's a feel good thing for the renters out there.... just because they don't write a check to the county or insurance company they don't pay them?? They pay them, and for someone else, through rent.
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Re: Is home ownership a whole life policy?

Post by GGFINORE »

Home ownership has nothing to do with whole life insurance haha. If anything it’s like the opposite of a Spia. You pay a stream of coupons for a defined period that gets paid in a lump sum when your human capital goes to zero.

As a complete degenerate that owns a whole life policy but not a home, there are a few things I considered. 1. I did a ton of research to understand policy construction, MEC limits, etc etc. I like to research things so this wasn’t an issue for me, but WL is a product that is different from most, so it takes its own set of rules etc. I did the same thing for my wife’s ring, my car etc.
2. I live in a high property tax state with cheap rent, and have an income that is rapidly increasing but not in the highest tax bracket with other tax advantaged space maxed.
3. My parents have permanent insurance as they are in estate planning, so am familiar with the product.

There is a “correct” way to structure WL from an accumulation perspective, using PUA riders, blended ART and taking it paid up early. Don’t want to derail this thread with that but wanted to say that neither housing nor permanent insurance are investments, both are assets. You should approach both from a cash flow and after-expenses return perspective, taking into account expected rent, expected taxes and repairs, net present value of cash flow, flexibility etc. No idea on the volatility of your local housing market, but comparing a 30 year term policy and investing the difference in high grade (like AA) corporates should give you a comparison point for WL, then just account for taxes and do an NPV calculation.
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Re: Is home ownership a whole life policy?

Post by GGFINORE »

chevca wrote: Tue Jan 21, 2020 10:48 pm It's a feel good thing for the renters out there.... just because they don't write a check to the county or insurance company they don't pay them?? They pay them, and for someone else, through rent.
This is obviously true, but depending on the local tax situation and how overextended the housing market is vs rents, it can literally make no financial sense and be just a lifestyle move/ locking in a fixed mortgage. We have had no rent increases in 5 years, and the property taxes on a home we would want to live in (obviously larger than our apt with room for kids) would be the same as our annual rent. This is not including repairs or mortgage payments.

Likewise there are some markets like Cleveland where you can buy a house in cash for 5-10 years worth of rent where you should obviously buy. It’s all a math question.
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Re: Is home ownership a whole life policy?

Post by chevca »

You have a very nice landlord, as their property taxes are going up too. Or, they were really sticking it to you 5 years ago. :happy
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Re: Is home ownership a whole life policy?

Post by gmaynardkrebs »

They are fundamentally similar in the economic sense of investing capital, and using the returns to defray or eliminate premiums in the case of whole life, and rent in the case of housing, in a way that is tax favored.
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Re: Is home ownership a whole life policy?

Post by iamlucky13 »

bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and
I want to focus on just one part of the question:I don't consider my house an investment. I consider it a place to live, so it fulfills a need first of all, and also satisfies numerous wants, since most of us buy a house for a mix of reasons, and to a scope beyond mere need. One of mine wants was a greater level of independence than I had while renting (not easy to value, but still a consideration). Also, my housing need will likely be fairly consistent over time (increase while raising a family, then decrease a bit in retirement), while my insurance needs will decline to nothing as my savings grow and my anticipated future expenses shrink.

I guess as someone else said, I treat my housing as consumption rather than investment.

There's a couple ways I can pay for the place I live, and when I looked at the likely future costs of each option, it appeared to me buying was likely to be cheaper overall within about 5 years, considering what it would cost me to sell if the need arose. This was within the time frame I was planning to stay in the same area.

Note that this consideration was circumstantial. I was buying in the aftermath of the recession, so prices were pretty good. I had several times previously made similar cost comparisons, and renting was significantly cheaper as the bubble grew.

To be honest, in both cases, I wasn't really considering equity growth or risk of decline or my down payment, although I'd say as a first approximation, treating equity as static and balanced out by the down payment was not a bad start.

It's true that I could have applied an investment methodology to the decision, which likely would have inflated the value of buying, but also would mean considering the value of alternative investments I could make with the saved down payment while renting. However, the decision seemed to pencil out with an acceptable level of risk even without considering effective rate of return.

My view on whole life versus term life is similar to that last consideration for housing: whole life can provide some net return, but inferior to sticking with term life and investing the savings from lower premiums elsewhere.
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gmaynardkrebs
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Re: Is home ownership a whole life policy?

Post by gmaynardkrebs »

iamlucky13 wrote: Wed Jan 22, 2020 12:29 am
bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and
I want to focus on just one part of the question:I don't consider my house an investment. I consider it a place to live, so it fulfills a need first of all, and also satisfies numerous wants, since most of us buy a house for a mix of reasons, and to a scope beyond mere need. One of mine wants was a greater level of independence than I had while renting (not easy to value, but still a consideration). Also, my housing need will likely be fairly consistent over time (increase while raising a family, then decrease a bit in retirement), while my insurance needs will decline to nothing as my savings grow and my anticipated future expenses shrink.

I guess as someone else said, I treat my housing as consumption rather than investment.

There's a couple ways I can pay for the place I live, and when I looked at the likely future costs of each option, it appeared to me buying was likely to be cheaper overall within about 5 years, considering what it would cost me to sell if the need arose. This was within the time frame I was planning to stay in the same area.

Note that this consideration was circumstantial. I was buying in the aftermath of the recession, so prices were pretty good. I had several times previously made similar cost comparisons, and renting was significantly cheaper as the bubble grew.

To be honest, in both cases, I wasn't really considering equity growth or risk of decline or my down payment, although I'd say as a first approximation, treating equity as static and balanced out by the down payment was not a bad start.

It's true that I could have applied an investment methodology to the decision, which likely would have inflated the value of buying, but also would mean considering the value of alternative investments I could make with the saved down payment while renting. However, the decision seemed to pencil out with an acceptable level of risk even without considering effective rate of return.

My view on whole life versus term life is similar to that last consideration for housing: whole life can provide some net return, but inferior to sticking with term life and investing the savings from lower premiums elsewhere.
You can think of it anyway you wish, but you get tax benefits through imputed income, a $525K capital gains tax break when you sell, possibly a mortgage deduction, and the strong possibility of appreciation. That is an investment.
iamlucky13
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Location: Western Washington

Re: Is home ownership a whole life policy?

Post by iamlucky13 »

gmaynardkrebs wrote: Wed Jan 22, 2020 1:03 am
iamlucky13 wrote: Wed Jan 22, 2020 12:29 am
bogglizer wrote: Mon Jan 20, 2020 12:00 pm Here on this forum, whole life policies are considered satanic, since (a) they couple together (otherwise unrelated) investment and life insurance and
I want to focus on just one part of the question:I don't consider my house an investment. I consider it a place to live.
....
You can think of it anyway you wish, but you get tax benefits through imputed income, a $525K capital gains tax break when you sell, possibly a mortgage deduction, and the strong possibility of appreciation. That is an investment.
Don't get me wrong, I understand the sense in which it is an investment. But investment considerations are not what drives my decision-making about buying a house.

In particular, I watched too many people try to manage it as a liquid investment through cash-out refinancing or large home equity loans that kept their LTV's unnecessarily close to 1 in a market that turned out to be inflated. Fortunately, nobody near and dear to me got burned by this when the housing bubble burst, but enough other people did to sour me on the mindset of thinking of a house as an investment.

For the limited sense that I do think of my house as an investment, I see it as the final element of my retirement savings. I'm investing in stocks and bonds that are growing at a rate that I expect will allow me to eventually retire comfortably in case of somewhere around the 95th percentile for life expectancy and maybe 5th percentile of historical returns. I figure the house covers almost all of the remaining risk.
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