Building Wealth Through Home Equity--Myth or Reality?

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Sam1
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Sam1 » Thu Jan 10, 2019 7:48 pm

Admiral wrote:
Thu Jan 10, 2019 3:46 pm
For MOST people, it's true, because MOST people save little to nothing.

For Bh's and others, it may or may not be true. There's this myth that all these people paying cheap rent are investing their massive housing savings in stocks. That is debateable to doubtful in (I would guess) 95% of the population (and particularly since most people don't own stock.)

People rent for lots of legit reasons, but MHO is that they don't do it because they think they'll be better off financially in 30 years not having owned a home. Anyone looking forward to paying rent when they're 80? Raise your hand!

Just my opinion, understand.
Anecdotally I’ve seen the same. Have many friends living in HCOL areas and the ones who haven’t bought can’t afford it. They often claim they have cheap rent in NY or whatnot, but the truth is they don’t have the downpayment. Some of them are making 500k plus but they live a lifestyle that doesn’t allow one to save for a downpayment. They continue on as renters.

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willthrill81
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by willthrill81 » Thu Jan 10, 2019 8:02 pm

David Stein of the Money For the Rest of Us podcast just had an episode dealing with the Japanese housing market, where 20 year old houses are literally worthless. If a newly built home doesn't sell quickly enough, it's considered 'tainted' and may need to be demolished. I was blown away.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

DrGoogle2017
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by DrGoogle2017 » Thu Jan 10, 2019 8:21 pm

My husband did a quick calculation the other day, our real estate beat the SP500 for the same period and of course we didn’t take into account of leveraging. With leveraging it’s like 4:1 ratio. But real estate is very location specific though and has other downside.
Last edited by DrGoogle2017 on Thu Jan 10, 2019 9:14 pm, edited 1 time in total.

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ClevrChico
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by ClevrChico » Thu Jan 10, 2019 8:30 pm

Home ownership is a lifestyle choice most of the time. And with that, a forced savings plan. Building wealth, hah!

texasdiver
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by texasdiver » Thu Jan 10, 2019 8:43 pm

Bought my first home in 1998 for $135,000 with 10% down on a 7.8% mortgage

Two cities, four houses, and 6 mortgages later we now live in a house worth about 5x the purchase price of our first home and we conservatively have about $275k in equity. Never took any "cash out" and except for the first home always paid 20% down on every subsequent home, rolling the equity into the down payment and moving costs.

Did we build wealth in the past 20 years? A little bit but considering all the expense of homeowning probably would have done better just investing the funds in Vanguard. Our current home equity is not something I even consider when calculating our net worth which is many times higher and mostly in retirement savings.

What the current home does give you is the down payment on the next home should we ever decide to move. Honestly, in our experience, which has mostly been in Texas, it doesn't give you much more than that.

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willthrill81
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by willthrill81 » Thu Jan 10, 2019 9:04 pm

Our home has appreciated in nominal terms by about 30% in the last four years. That's a nice plus, to be sure, but we didn't plan on it. And it's a benefit that may never materialize; we cannot access that gain without selling, and we have no plans on leaving where we are. On the contrary, it's also increased our property taxes by 30% and our home insurance by even more.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Dink2018
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Dink2018 » Thu Jan 10, 2019 9:08 pm

After selling houses to people of all economic backgrounds for 12 years from $100k to $2m I can say for sure that its a money pit of epic proportions. NOBODY I have ever worked with can actually tell me the real numbers about what they spent, what they made, or what their true opportunity costs were.

A: It's a liability (not an asset) if it doesn't generate cash flow
B: Most people pay an 70-90% interest rate when you consider how long they hold a 30 year mtg (7-10 years).
C: The actual carrying costs are not even closely similar to peoples memory or the reality of the situations, far more costly. The average Joe thinks like this...

Bought for $250k and sold for $350k

Thinks to himself "I made $100k"

Then bought something else for $450k

In his mind he "made $100k" but that's not reality, he just levered more debt to get a bigger house and has no more equity than he had when he was a renter. I don't see many people buy a house low, sell high, then never buy again or move to a foreign country. I just don't see it.

Homes are emotional and for shelter, if you are the one paying you aren't making money you are living there.

randomguy
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by randomguy » Thu Jan 10, 2019 9:56 pm

Dink2018 wrote:
Thu Jan 10, 2019 9:08 pm
After selling houses to people of all economic backgrounds for 12 years from $100k to $2m I can say for sure that its a money pit of epic proportions. NOBODY I have ever worked with can actually tell me the real numbers about what they spent, what they made, or what their true opportunity costs were.

A: It's a liability (not an asset) if it doesn't generate cash flow
B: Most people pay an 70-90% interest rate when you consider how long they hold a 30 year mtg (7-10 years).
C: The actual carrying costs are not even closely similar to peoples memory or the reality of the situations, far more costly. The average Joe thinks like this...

Bought for $250k and sold for $350k

Thinks to himself "I made $100k"

Then bought something else for $450k

In his mind he "made $100k" but that's not reality, he just levered more debt to get a bigger house and has no more equity than he had when he was a renter. I don't see many people buy a house low, sell high, then never buy again or move to a foreign country. I just don't see it.

Homes are emotional and for shelter, if you are the one paying you aren't making money you are living there.
If you want to give me a million dollars of cash (i.e. since it doesn't generate cash flow it isn't an asset ) because you don't want the liability, I will take it.:) The house is an asset. It's liquidity is limited.

And what is the interest rate on permanently renting?:)

In the end you have to look at the alternatives. Pay 2k in rent for 30 years with annual increases or buy for 2k/month with 20% down? Odds favor the home owner ended up with more money. You can change the situation (i.e. a good rent controlled apartment, houses costs a lot more than renting equivalent,....) to get different results.

DrGoogle2017
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by DrGoogle2017 » Thu Jan 10, 2019 10:03 pm

randomguy wrote:
Thu Jan 10, 2019 9:56 pm
Dink2018 wrote:
Thu Jan 10, 2019 9:08 pm
After selling houses to people of all economic backgrounds for 12 years from $100k to $2m I can say for sure that its a money pit of epic proportions. NOBODY I have ever worked with can actually tell me the real numbers about what they spent, what they made, or what their true opportunity costs were.

A: It's a liability (not an asset) if it doesn't generate cash flow
B: Most people pay an 70-90% interest rate when you consider how long they hold a 30 year mtg (7-10 years).
C: The actual carrying costs are not even closely similar to peoples memory or the reality of the situations, far more costly. The average Joe thinks like this...

Bought for $250k and sold for $350k

Thinks to himself "I made $100k"

Then bought something else for $450k

In his mind he "made $100k" but that's not reality, he just levered more debt to get a bigger house and has no more equity than he had when he was a renter. I don't see many people buy a house low, sell high, then never buy again or move to a foreign country. I just don't see it.

Homes are emotional and for shelter, if you are the one paying you aren't making money you are living there.
If you want to give me a million dollars of cash (i.e. since it doesn't generate cash flow it isn't an asset ) because you don't want the liability, I will take it.:) The house is an asset. It's liquidity is limited.

And what is the interest rate on permanently renting?:)

In the end you have to look at the alternatives. Pay 2k in rent for 30 years with annual increases or buy for 2k/month with 20% down? Odds favor the home owner ended up with more money. You can change the situation (i.e. a good rent controlled apartment, houses costs a lot more than renting equivalent,....) to get different results.
Also you don’t always get the same house. People tend to rent smaller homes than when they’re buying. Let alone other factors like location, availability of homes, etc.

lexie2000
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by lexie2000 » Thu Jan 10, 2019 10:27 pm

We broke even on our first home - owned for 12 yrs.
We made almost $500K on the sale of our second home - owned for 7 yrs.
We lost $114K on the sale of our third home - owned for 10 yrs.

Housing markets go up and down just like everything else. We were able to extract almost $500K in home equity when we sold home #3 (CA Bay Area) and bought home #4 in NV (lower cost of living and no state income tax). The money was not the reason for the move, but a really nice side benefit. :wink:

Mako52
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Mako52 » Thu Jan 10, 2019 10:28 pm

yousha wrote:
Thu Jan 10, 2019 4:06 pm
Purchased my home in 1971 and sold it in 2004 . Purchased it for $27,750 and sold it for $1,665,000.
NYC suburbs with some land? Florida intracoastal waterfront? Marin County? I don't know many other places that would have that kind of appreciation.
You outdid the stock market.

https://www.portfoliovisualizer.com/bac ... arket1=100

A "typical" 3BR home in Fairfax County, VA sold for $35k in 1970 and Zillow has the house I'm thinking of at 550k now.

ETA: if some people view a roof over their head as an opportunity cost, why not live in a shack? Or double wide?
Last edited by Mako52 on Thu Jan 10, 2019 10:39 pm, edited 2 times in total.

dbr
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dbr » Thu Jan 10, 2019 10:30 pm

Dink2018 wrote:
Thu Jan 10, 2019 9:08 pm

A: It's a liability (not an asset) if it doesn't generate cash flow

That is not what the words asset and liability mean.

B: Most people pay an 70-90% interest rate when you consider how long they hold a 30 year mtg (7-10 years).

I agree people often do not recognize the total cost in interest paid, but that is not what the word rate means.

C: The actual carrying costs are not even closely similar to peoples memory or the reality of the situations, far more costly. The average Joe thinks like this...

You may indeed by correct that people do not correctly account for costs from interest to insurance to taxes to maintenance to the temptation to spend on remodeling and other improvements. That does not mean people can't do it right.


Bought for $250k and sold for $350k

Thinks to himself "I made $100k"

Then bought something else for $450k

Well, agreed there could be a lot of people who are stupid about that.

In his mind he "made $100k" but that's not reality, he just levered more debt to get a bigger house and has no more equity than he had when he was a renter. I don't see many people buy a house low, sell high, then never buy again or move to a foreign country. I just don't see it.

I know more than one set of people who owned a home in a HCOL area for decades, sold it, and moved to a lower cost of living area rental when they were older and ended up very comfortable indeed. I would not say they got wealthy that way, but they sure ended up covering their needs very well.

Homes are emotional and for shelter, if you are the one paying you aren't making money you are living there.

That is an important point but overstated. The home is still an asset. What the return on it is needs to be evaluated objectively and may be highly variable both due to location and timing. It might be a fair statement that as an investment the expected return does not justify the risk compared to other common investments. You are correct that (I prefer lifestyle, which is very real, to emotion) and shelter are the actual justification for owning a home.

ImmigrantSaver
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by ImmigrantSaver » Thu Jan 10, 2019 10:54 pm

GT99 wrote:
Thu Jan 10, 2019 4:02 pm
Ed_Sandwich wrote:
Thu Jan 10, 2019 2:22 pm

Don't forget it's also a highly leveraged asset. Most people don't borrow $500k to invest in the stock market, but a lot of folks borrow that much to invest in a home.

If that house and it appreciates 2% in a year you get $10k. If your down payment and mortgage payments for the year total $60k, you just made a 17% return in a year, on paper.

Easy to make a big return, but also easy to end up in the hole.
That's not quite right - you're assuming you're getting that entire $60k back, but you don't get back your interest payments. And you're ignoring major costs (taxes, insurance, closing costs). Lets use a more realistic example. Let's say we bought a home for $500k, put 20% down, had a 4.5% mortgage rate, and sold after 5 years, assuming 2% annual appreciation, which results in a sale of $552,040 after 5 years.

Total Costs
$100,000 = down payment
$121,560 = total P&I payments over 5 years
$30,000 = Total Insurance and Taxes over 5 years (obviously varies widely based on location, but I think this is a good middle-point).
$5,000 = maintenance costs. This is low for most cases.
$33,122 = 8% closing costs on sale (8-10% is typical).
$289,682 = total costs

Total Proceeds from sale = Sale Price - Mortgage Balance = $552,040 - $364,681 = $187,359.

So in this fairly realistic (I'm not counting tax benefits, but I'm estimating low costs as well) scenario, you've lost $102,323,42. That's a 35% loss on your investment. Even if you do ignore closing costs, maintenance, Insurance, and taxes, it's still a loss.

But, it's not as bad as it sounds. If you'd rented a $2,500/month home for that same time period (and a $500,000 home typically rents for a heck of a lot more than $2500/month), you would have paid a total of $150,000 in rent.

So, you come out ahead IF you ignore the investment potential of the free capital when you rent. I'm not going further down that path right now. :D
I am not sure I am allowed to copy the link by the board rules. But I just saw a streeteasy listing for a 1-bed coop apartment in Brooklyn with "similar" numbers as your example. The apartment is listed both for sale and rent - whichever goes through first I guess.

The sale price is $539k while the rent is... only $1950. Here is the kicker the apartment maintenance cost is a whooping 900 bucks per month (including taxes nonetheless)! How is that for a no-brainer renting? :sharebeer

phxjcc
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by phxjcc » Fri Jan 11, 2019 12:39 am

To answer the OP's original question...unfortunately the answer is: it depends.

Amsterdam appreciation rates, really? Ok.

Here is a real world example from wacky SoCal.

Bought 1962, 12,000
Sold 1998 40,000
Sold 2000 145,000
Sold 2003 185,000
Sold 2010 202,000
Sold 2011 222,500
Sold 2011 323,000 (sic)
Sold 2013 330,000
Sold 2014 455,000
Current value 515,000
(per zillow...but actually closer to 600,000)

So, if you were the original owner you would have made 28,000 in 36 years.
However if you had bought in 1998 and were just now paying it off you would be looking at 475,000+ profit.
I know, net taxes and up keep, blah blah blah.

I have not looked at the SP500 return for the last 30 years, but I am guessing that it is not that high.
Plus as someone stated upthread, you would have to assume that you would have put those funds into the market, AND you would still have had to pay rent, which is a 100% sunk cost yielding no return whatsoever.

Now, I have friends in the Midwest that tell me their house is worth about 5% more than they paid for it 20 years ago.
However, as opposed to a Hcol area, they have enough after fixed costs to invest a greater portion of their income come into the market.

I also have friends in Denver with 30% in one year and have personally seen 50% in two years in AZ.

In summary you simply cannot look at ANY broad based real estate stats, unless you are buying a broad based REIT.

The net is that I believe their is a phenomenon known as (iirc) "convergence to the mean" wherein all investment will eventually yield that same 4% + inflation unless you invest in a very specific niche--which then can give you high rewards or complete failure.

Or SoCal real estate, because it NEVER goes down. LOL

To close, if you live in a hcol area, chances are you will do ok with a purchase. If you don't I would be careful buying as much as you can afford..because at the other end of the payments you might not see any capital appreciation. As I opened with...it depends.

DrGoogle2017
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by DrGoogle2017 » Fri Jan 11, 2019 3:20 am

Even for SoCal, not all SoCal locations are the same. Some areas appreciate much faster than others. Same with the Bay Area. In the Bay Area, the houses near Google we’re sold recently at much higher comps than even when I was year. I don’t know when Google went public but that’s probably the reason.

mancich
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by mancich » Fri Jan 11, 2019 5:03 am

Like others have said, it is a lifestyle choice (vs renting) and if you buy in the right location at the right time, great. Most first-time home buyers who use the reasoning "we won't be throwing money away on rent anymore and we'll build wealth" drastically underestimate the true cost to own a home. For long-time homeowners on this site (myself included), think about how many times over the years you've stopped into a Home Depot or Lowes on a weekend. $50 here, $100 there. Repairs. Maintenance. Voluntary upgrades and improvements. Factor all that into the average annual return calculations as well and I'm willing to bet the return is even lower. That being said, I love owning a home :oops:

HardHitter
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by HardHitter » Fri Jan 11, 2019 7:48 am

This is a problem I'm dealing with right now. Bought a starter house for $400K which now sells for $900K+. Great right? Not exactly, because every other house around here has appreciated just as much. So even if I sold to buy a $1.5M, my expense continues to go up due to now paying prop tax on a $1.5M house vs $400K.

Even if I have a paid off $1.5M house by the time retirement comes and it doesn't appreciate (rare in HCOL California) do I really have that $1.5M to live on? No.

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Watty
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Watty » Fri Jan 11, 2019 8:10 am

nisiprius wrote:
Thu Jan 10, 2019 12:31 pm
The 381-year record of residential real estate in the Herengracht district in Amsterdam isn't encouraging. Sometimes you would have needed to wait a century to get back to even.

Doubling in 381 years is an average annual return of less than 0.2% per year.

Image

(If anyone knows where to find a chart or numbers with data past 2008, please post).

And one single residential unit isn't diversified.

And I don't think it's an "investment" if you aren't prepared to sell it at any time, based purely on financial considerations and ignoring the fact that it's your shelter. Salespeople like to pitch any expensive purchase as an "investment."
There is a lot of survivorship bias in that so that may be the best case scenario

I know that Europe tends to be different but I would suspect few houses that were built 400 years ago have survived.

When you consider how houses are being built today the odds of many of them lasting 400 years are pretty slim. I have been researching my family tree and I have found the addresses where my parents and some of my grandparents lived when they were young and few of them still exists and the ones that do are far past their prime.

That is not to say that housing is a bad investment, it is just that the rent or use of the house is the major return from owning real estate unless you are lucky and buy just before a big price increase.

RickBoglehead
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by RickBoglehead » Fri Jan 11, 2019 8:18 am

The answer to the OP's question is MYTH.

Prior to the housing crash in 07/08, I would have said reality.

You can't count on housing, or investments, to build wealth because you cannot predict the future. I used to believe that housing was one very solid way to create wealth. Now, I'm convinced that it should be looked at as equal to or slightly better than renting, at the right time in someone's life, because of tax law changes and the potential inability to sell for the price and timing you need. The market lets me sell investments when I need, but perhaps not at the price I need.

And, as someone else pointed out, while you may gain 50% on your house, when you want to trade up you may have to pay 50% more on your next house...

Our first house we lost money. We bought a brand new 3 bedroom, and then went to sell when a entire development of new 4 bedrooms was 1/2 done across the street.

On our second home we made money. Would have made more if we took the first offer with repair adjustments, but we were insulted at their list. Should have swallowed our pride and accepted it.

On this home my expectation is that after 14 or so years when we sell (2+ years from now), we will make money before commission, and after commission might get a a 7% total return over 14 years.

That said, I will probably buy our retirement home.

28fe6
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by 28fe6 » Fri Jan 11, 2019 8:34 am

The price of food going up continuously.

The price of gasoline going up continuously.

The price of clothing and internet access going up continuously.

The price of housing going up continuously.

people tend to think continuously rising housing costs are a good thing, but it's a bad thing for all other living costs.

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tadamsmar
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by tadamsmar » Fri Jan 11, 2019 8:38 am

I think it should be evaluated as a service. It serves as a lodging. What is the cheapest way to get your lodging, total lifetime cost plus terminal value in real dollars including opportunity cost? This total[ cost of lodging could be a negative value since you could, in principle, make money on your lodging. For comparison purposes, you'd have to standardize the quality of the lodging.

The terminal equity and total cost to own would be in the equation for home ownership. Commuting/transportation cost could be considered in total cost to own.

And you have a risk parameter, the uncertainty of the cost of lodging.

It really should be evaluated as a service, but the equity return (positive or negative) of an owned home is part of the equation.
Last edited by tadamsmar on Fri Jan 11, 2019 2:45 pm, edited 1 time in total.

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knpstr
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by knpstr » Fri Jan 11, 2019 8:55 am

KlangFool wrote:
Thu Jan 10, 2019 2:29 pm
Ed_Sandwich wrote:
Thu Jan 10, 2019 2:22 pm
GT99 wrote:
Thu Jan 10, 2019 10:43 am
This is not surprising at all because most people are not very good at managing their finances. Buying a house forces them to put money into that asset, which will usually appreciate (the number I recall seeing is more like 2% per year on average). Most people who are renting are not putting the monthly difference vs paying a mortgage (and other home ownership costs) into investments.

Not to say I'm advocating renting over buying. Buying has been great for me personally. There's no one correct answer for everyone when it comes to rent vs buy.
Don't forget it's also a highly leveraged asset. Most people don't borrow $500k to invest in the stock market, but a lot of folks borrow that much to invest in a home.

If that house and it appreciates 2% in a year you get $10k. If your down payment and mortgage payments for the year total $60k, you just made a 17% return in a year, on paper.

Easy to make a big return, but also easy to end up in the hole.
Ed_Sandwich,

<<If that house and it appreciates 2% in a year you get $10k.>>

You lose money since you borrowed at 4% to 5% to buy the house. The house needs to appreciate 4% to 5% just for you to breakeven.

KlangFool
That's not quite right.
The mortgage interest is just on the loan balance.
The appreciation is on total home value. You don't need 4% appreciation year over year on $100K home to offset 4% interest payments on an $80K loan that gets smaller each and every month.

The first year you only need 3.2% appreciation given a "traditional" buying with 20% down.
Year 1:
$100K home value at 3.174% = $3,174 "gain"
$80K loan at 4% = $3,174 "loss" (interest expense)
Year 2:
$78,591 loan balance @ 4% = $3,117 "loss"
$3,117 divided by $103,174 home value = 3.0%

and so on. Just wanted to clarify that.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Stormbringer
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Stormbringer » Fri Jan 11, 2019 9:08 am

I don't even get why this is controversial.
  • You have to live somewhere.
  • You are either paying your own mortgage, or your landlords mortgage.
  • If you pay your own mortgage, the equity is yours. If you pay your landlord's mortgage, the equity is his.
  • Either way, you pay for repairs, maintenance and taxes. If you are a tenant, it's just built into your rent.
  • Rent is not tax deductible. Mortgage interest and property taxes are.
  • Rent goes up every year. A fixed rate mortgage does not.
  • A mortgage is eventually paid off. Rent goes on (and up) forever.
On top of all that, you've got leverage. If your $200,000 home does no better than keep up with inflation, say 2%, then it increases in value by $4,000 per year. If you put 20% down ($40,000) that is a 10% return on your money.
"Compound interest is the most powerful force in the universe." - Albert Einstein

dknightd
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dknightd » Fri Jan 11, 2019 9:11 am

When we bought our house the mortgage/taxes/insurance/upkeep was slightly more than renting. We put 5% down using an FHA loan. 30 years later it is cheaper than renting. I did not generate "wealth" but in the end the costs were lower, so it did help. In a few years when it is paid for, costs will be even lower. and I'll have an "asset" I could sell if needed . . .
I suspect on average, if you don't move too often, from a financial point of view, buying is probably better than renting. I suspect the people who make their living renting out properties probably agree.

For us it was part lifestyle, part finances, that led us to buy a house rather than rent forever.

I would not buy a house with the goal of making money on it. They are not usually good investments (although for some lucky people they are). But buying a house did help me build wealth. Emphasis on help.

KlangFool
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by KlangFool » Fri Jan 11, 2019 9:14 am

knpstr wrote:
Fri Jan 11, 2019 8:55 am
KlangFool wrote:
Thu Jan 10, 2019 2:29 pm
Ed_Sandwich wrote:
Thu Jan 10, 2019 2:22 pm
GT99 wrote:
Thu Jan 10, 2019 10:43 am
This is not surprising at all because most people are not very good at managing their finances. Buying a house forces them to put money into that asset, which will usually appreciate (the number I recall seeing is more like 2% per year on average). Most people who are renting are not putting the monthly difference vs paying a mortgage (and other home ownership costs) into investments.

Not to say I'm advocating renting over buying. Buying has been great for me personally. There's no one correct answer for everyone when it comes to rent vs buy.
Don't forget it's also a highly leveraged asset. Most people don't borrow $500k to invest in the stock market, but a lot of folks borrow that much to invest in a home.

If that house and it appreciates 2% in a year you get $10k. If your down payment and mortgage payments for the year total $60k, you just made a 17% return in a year, on paper.

Easy to make a big return, but also easy to end up in the hole.
Ed_Sandwich,

<<If that house and it appreciates 2% in a year you get $10k.>>

You lose money since you borrowed at 4% to 5% to buy the house. The house needs to appreciate 4% to 5% just for you to breakeven.

KlangFool
That's not quite right.
The mortgage interest is just on the loan balance.
The appreciation is on total home value. You don't need 4% appreciation year over year on $100K home to offset 4% interest payments on an $80K loan that gets smaller each and every month.

The first year you only need 3.2% appreciation given a "traditional" buying with 20% down.
Year 1:
$100K home value at 3.174% = $3,174 "gain"
$80K loan at 4% = $3,174 "loss" (interest expense)
Year 2:
$78,591 loan balance @ 4% = $3,117 "loss"
$3,117 divided by $103,174 home value = 3.0%

and so on. Just wanted to clarify that.
knpstr,

<<That's not quite right. >>
<<The mortgage interest is just on the loan balance.
The appreciation is on total home value.>>

It is correct because you need to factor in the opportunity cost of the down payment. It is at least the same as the mortgage interest. In this case, 80K loan + 20K down payment = 100K. Aka, the house value.

It is very simple.

In my opinion, the only way to make money from the house that you live in.

A) Buy the same house as the one that you are willing to rent.

B) Buy it when the PITI with 20% down payment and 30 fixed rate mortgage is 20% to 30% lowered than market rent.

Under both (A) and (B), you lowered your housing expense by buying the house. Aka, you make money every year by imputed rent. In that case, even if the house does not appreciate or lose money, you make money from your annual housing expense reduction. Basically, you do not make money from home equity. You assume that it is zero.

This is not a popular opinion. Most people should not buy a house under those conditions. And, when they do buy a house, they will not be "House Poor". That makes a lot of other people unhappy.

KlangFool
Last edited by KlangFool on Fri Jan 11, 2019 9:24 am, edited 2 times in total.

wolf359
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by wolf359 » Fri Jan 11, 2019 9:17 am

yousha wrote:
Thu Jan 10, 2019 4:06 pm
Purchased my home in 1971 and sold it in 2004 . Purchased it for $27,750 and sold it for $1,665,000.
Congratulations, but that type of return probably isn't typical for all houses purchased in 1971 and sold in 2004. It is likely dependent on location and other factors. In addition, your cost needs to include the cost of taxes, interest payments, insurance, maintenance, repairs, improvements, and other costs during that 34 year period.

The following statements are intended to add context to the return. Please do not misconstrue it as criticism.

- As a baseline, if you ignore the costs of ownership and focus only on the original price, you enjoyed a 12.81% Return on Investment. That's a great return, but isn't accurate because the total costs aren't included. However, even with these unknown costs added in, you probably did exceptionally well.

- If you had instead invested that $27,750 in the S&P 500 in 1972 (sorry, portfolio visualizer only goes back to 1972), you would have $2,498,649 today. If you had sold that hypothetical stock holding in 2004, you would have had $895,281. (2004 was still recovering from the tech crash.) Of course, you couldn't invest in an S&P 500 index fund in 1972. Vanguard didn't establish their first S&P 500 fund until 1976.

- According to the CPI inflation calculator by the BLS, $27,750 in 1972 is worth $175,730.01 today, so you easily beat inflation.

- According to US Census statistics, the median home purchased in 1971 cost $25,200. (Half of all homes sold cost more, half cost less.) The average was $28,300. Also according to US Census statistics, the median home purchased in 2004 cost $221,000. The average was $274,500. This is consistent with the previously stated statistic of home values increasing at slightly above the rate of inflation. Your home value was close to the average when bought, and was considerably above the average when sold. You had a fantastic return.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dknightd » Fri Jan 11, 2019 9:26 am

wolf359 wrote:
Fri Jan 11, 2019 9:17 am
Your home value was close to the average when bought, and was considerably above the average when sold. You had a fantastic return.
And a place to live :)

NotWhoYouThink
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by NotWhoYouThink » Fri Jan 11, 2019 9:38 am

For people who post on this forum, which means people who can and will save, the choice of renting vs. buying is mostly a lifestyle choice, and home equity contributes little to our overall wealth.

For most of the rest of the country, people won't save intentionally, they won't fund their retirement, and if it weren't for home equity their net worth would be just slightly over their checking account balance.

For some people, as we saw in the Great Recession, even buying a home won't help them build assets because they keep mortgaging it to the hilt.

So it's not a myth, but it's also not reality for everyone. Home equity is a way for people who have trouble saving to build up assets, but it doesn't work for everyone, and not everyone needs it.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by sabtastic » Fri Jan 11, 2019 9:43 am

yousha wrote:
Thu Jan 10, 2019 4:06 pm
Purchased my home in 1971 and sold it in 2004 . Purchased it for $27,750 and sold it for $1,665,000.
This is an average of about $4k a month!! My parents house sold about 15 years ago appreciated at about $10k a month over nearly the same time period. Absolutely incredible.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by wolf359 » Fri Jan 11, 2019 10:00 am

Stormbringer wrote:
Fri Jan 11, 2019 9:08 am
I don't even get why this is controversial.
  • You have to live somewhere.
    Absolutely true.
  • You are either paying your own mortgage, or your landlords mortgage.
    Also true. However, renters usually think of rent as an expense that they want to minimize. When most people buy a home, their emotions get involved, and they tend to buy a bigger mortgage payment than they would have rented. In addition, if your rent is too high, you simply move or downsize to a lower rent unit. Mortgage holders who find their mortgage too high due to job loss or other factors are stuck.
  • If you pay your own mortgage, the equity is yours. If you pay your landlord's mortgage, the equity is his.
    This is also true.
  • Either way, you pay for repairs, maintenance and taxes. If you are a tenant, it's just built into your rent.
    Tenants can control their rent by renting elsewhere. Homeowner costs are fixed while you own the home. In addition, what you're saying is that homeowners are paying more for repairs, maintenance, and taxes because they didn't include those costs in their price considerations. Total cost for renters is lower.
  • Rent is not tax deductible. Mortgage interest and property taxes are.
    While technically true, most people do not itemize their taxes. Interest rates have been so low that most people did not deduct their mortgage interest and property taxes. (You don't itemize if your itemized deductions are lower than your standard deduction.) After the tax changes, you probably are not deducting your mortgage interest and property taxes this year. (The standard deduction almost doubled for 2017)
  • Rent goes up every year. A fixed rate mortgage does not.
    Rent doesn't go up every year. It stays competitive with other rental units in the market. In some markets, it is much more affordable to rent than to buy. You have to do the math for your area. While rent COULD technically go up every year, it doesn't. I'm also a landlord, and I'm aware of the limits or I can't rent my units. I certainly wasn't raising rents when the economy dropped in 2008.
  • A mortgage is eventually paid off. Rent goes on (and up) forever.
    Also technically true, but if I have to pay an expense for 30 years, this is a distinction without a difference. I'm still paying a mortgage throughout my working career.
On top of all that, you've got leverage. If your $200,000 home does no better than keep up with inflation, say 2%, then it increases in value by $4,000 per year. If you put 20% down ($40,000) that is a 10% return on your money.
To me, a home is a living expense. I want to minimize my living expenses. I don't like leverage. You can't go bankrupt if you don't owe any money. I did choose to buy rather than rent, but I do not count my home as part of my investments. The return is irrelevant. I bought so my housing expense is fixed at a rate I can handle indefinitely (and I structured my downpayment and purchase approriately.) It's our home, and we live here. I'd rather have the housing price stay low because that will keep my property taxes low. Only when we don't want to live here anymore do I want the property values to be sky-high.

It's not a controversy. The buy vs. rent decision is more nuanced than "always buy" or "always rent." It's more of weighing the arguments in your situation and picking appropriately.
Last edited by wolf359 on Fri Jan 11, 2019 10:14 am, edited 1 time in total.

dbr
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dbr » Fri Jan 11, 2019 10:11 am

wolf359 wrote:
Fri Jan 11, 2019 10:00 am

To me, a home is a living expense. I want to minimize my living expenses. I don't like leverage. You can't go bankrupt if you don't owe any money. I did choose to buy rather than rent, but I do not count my home as part of my investments. The return is irrelevant. I bought so my housing expense is fixed at a rate I can handle indefinitely (and I structured my downpayment and purchase approriately.) It's our home, and we live here. I'd rather have the housing price stay low because that will keep my property taxes low. Only when we don't want to live here anymore do I want the property values to be sky-high.
I don't understand not recognizing all the factors involved in owning a home. That includes lifestyle preference, expenses, mortgage liability, legal liaibity,and the asset value of the home, at least. Why would a person doing good financial planning not just include everything that is involved?

As a practical matter any significant asset value built up in a home is worth taking into account even if it is just sloughed off as a last ditch reserve of some kind. Put differently, if a person thinks the value of their home is meaningless, then I would like to be written into their will to inherit it.

wolf359
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by wolf359 » Fri Jan 11, 2019 10:27 am

dbr wrote:
Fri Jan 11, 2019 10:11 am
wolf359 wrote:
Fri Jan 11, 2019 10:00 am

To me, a home is a living expense. I want to minimize my living expenses. I don't like leverage. You can't go bankrupt if you don't owe any money. I did choose to buy rather than rent, but I do not count my home as part of my investments. The return is irrelevant. I bought so my housing expense is fixed at a rate I can handle indefinitely (and I structured my downpayment and purchase approriately.) It's our home, and we live here. I'd rather have the housing price stay low because that will keep my property taxes low. Only when we don't want to live here anymore do I want the property values to be sky-high.
I don't understand not recognizing all the factors involved in owning a home. That includes lifestyle preference, expenses, mortgage liability, legal liaibity,and the asset value of the home, at least. Why would a person doing good financial planning not just include everything that is involved?

As a practical matter any significant asset value built up in a home is worth taking into account even if it is just sloughed off as a last ditch reserve of some kind. Put differently, if a person thinks the value of their home is meaningless, then I would like to be written into their will to inherit it.
The asset value of the home counts towards net worth, which isn't meaningless, but it's not practical. Put another way, I can live off my investments, but not my house. I'm also a proponent of a sinking fund to pay off the mortgage, rather than paying the mortgage down over years. I want the money where I can use it.

Yes, I do consider my house to be a backup to my financial plan, and will consider downsizing if I need to replenish my funds. I also include it in estate planning. But maximizing risk to maximize returns is a red line when it comes to the home. If you increase leverage just to increase the return, you risk losing the house. My intent is to provide a stable environment at a controlled cost over a long period of time. Investment return is not my primary consideration when buying a home. Price matters when you buy it and when you sell it. It matters in between those two periods only for the property taxes that they make you pay.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by knpstr » Fri Jan 11, 2019 10:30 am

KlangFool wrote:
Fri Jan 11, 2019 9:14 am
knpstr wrote:
Fri Jan 11, 2019 8:55 am
KlangFool wrote:
Thu Jan 10, 2019 2:29 pm
Ed_Sandwich wrote:
Thu Jan 10, 2019 2:22 pm
GT99 wrote:
Thu Jan 10, 2019 10:43 am
This is not surprising at all because most people are not very good at managing their finances. Buying a house forces them to put money into that asset, which will usually appreciate (the number I recall seeing is more like 2% per year on average). Most people who are renting are not putting the monthly difference vs paying a mortgage (and other home ownership costs) into investments.

Not to say I'm advocating renting over buying. Buying has been great for me personally. There's no one correct answer for everyone when it comes to rent vs buy.
Don't forget it's also a highly leveraged asset. Most people don't borrow $500k to invest in the stock market, but a lot of folks borrow that much to invest in a home.

If that house and it appreciates 2% in a year you get $10k. If your down payment and mortgage payments for the year total $60k, you just made a 17% return in a year, on paper.

Easy to make a big return, but also easy to end up in the hole.
Ed_Sandwich,

<<If that house and it appreciates 2% in a year you get $10k.>>

You lose money since you borrowed at 4% to 5% to buy the house. The house needs to appreciate 4% to 5% just for you to breakeven.

KlangFool
That's not quite right.
The mortgage interest is just on the loan balance.
The appreciation is on total home value. You don't need 4% appreciation year over year on $100K home to offset 4% interest payments on an $80K loan that gets smaller each and every month.

The first year you only need 3.2% appreciation given a "traditional" buying with 20% down.
Year 1:
$100K home value at 3.174% = $3,174 "gain"
$80K loan at 4% = $3,174 "loss" (interest expense)
Year 2:
$78,591 loan balance @ 4% = $3,117 "loss"
$3,117 divided by $103,174 home value = 3.0%

and so on. Just wanted to clarify that.
knpstr,

<<That's not quite right. >>
<<The mortgage interest is just on the loan balance.
The appreciation is on total home value.>>

It is correct because you need to factor in the opportunity cost of the down payment. It is at least the same as the mortgage interest. In this case, 80K loan + 20K down payment = 100K. Aka, the house value.
My mistake. I misunderstood the argument you making. I thought you were simply comparing home appreciation rates needed to offset mortgage interest, not home appreciation rates need to offset mortgage interest and opportunity costs of home equity.

I didn't see any mention of the opportunity cost of the rent payment being made so I didn't go to that "second level".
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Admiral
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Admiral » Fri Jan 11, 2019 10:52 am

We seem to go round and round (and round) on this topic all the time: Is a home an asset or a liability? Is buying better than renting?

And the answer is always the same: it depends. Just like stocks, it can be a good investment or a bad one, depending on the circumstances. But several things are not debatable:

1) A fixed mortgage is an inflation hedge; a rental is not
2) A home is something that can be sold; a rental is not
3) A home payment eventually goes away (unless you're an idiot and continually refinance/pull money out :oops: ); a rental does not
4) A home offers a relatively predictable recurring expense; a rental does not (unless rent controlled)
5) Part of the home payment each month goes onto the plus side of the balance sheet; a rental does not.

This does not mean renting does not have its place. But these are the facts, and when looked at objectively tend to make owning more favorable as a long-term choice.

Broken Man 1999
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Broken Man 1999 » Fri Jan 11, 2019 10:57 am

dbr wrote:
Fri Jan 11, 2019 10:11 am
wolf359 wrote:
Fri Jan 11, 2019 10:00 am

To me, a home is a living expense. I want to minimize my living expenses. I don't like leverage. You can't go bankrupt if you don't owe any money. I did choose to buy rather than rent, but I do not count my home as part of my investments. The return is irrelevant. I bought so my housing expense is fixed at a rate I can handle indefinitely (and I structured my downpayment and purchase approriately.) It's our home, and we live here. I'd rather have the housing price stay low because that will keep my property taxes low. Only when we don't want to live here anymore do I want the property values to be sky-high.
I don't understand not recognizing all the factors involved in owning a home. That includes lifestyle preference, expenses, mortgage liability, legal liaibity,and the asset value of the home, at least. Why would a person doing good financial planning not just include everything that is involved?

As a practical matter any significant asset value built up in a home is worth taking into account even if it is just sloughed off as a last ditch reserve of some kind. Put differently, if a person thinks the value of their home is meaningless, then I would like to be written into their will to inherit it.
I would hope any homeowner did recognize all the factors involved in owning a home. That certainly should be considered BEFORE a home is purchased. Only after that should anyone saddle themselves with a mortgage and other expenses a home entails.

My current home ownership started by having over 50% equity from day one. Our home and subsequent expenses haven't been much of a burden.

And, now our home equity doesn't account for a very high percentage of our wealth. So, maybe I increased our wealth via home ownership, maybe I didn't. We have enjoyed raising our family in a very nice, spacious home. So, the wealth angle of home ownership is pretty much a case of I really don't care, at this point in life. I suppose I could consider our home as a storage of wealth that might increase or decrease, but what good would that do me, or any kind of mental accounting.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

dbr
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dbr » Fri Jan 11, 2019 11:04 am

Broken Man 1999 wrote:
Fri Jan 11, 2019 10:57 am
dbr wrote:
Fri Jan 11, 2019 10:11 am
wolf359 wrote:
Fri Jan 11, 2019 10:00 am

To me, a home is a living expense. I want to minimize my living expenses. I don't like leverage. You can't go bankrupt if you don't owe any money. I did choose to buy rather than rent, but I do not count my home as part of my investments. The return is irrelevant. I bought so my housing expense is fixed at a rate I can handle indefinitely (and I structured my downpayment and purchase approriately.) It's our home, and we live here. I'd rather have the housing price stay low because that will keep my property taxes low. Only when we don't want to live here anymore do I want the property values to be sky-high.
I don't understand not recognizing all the factors involved in owning a home. That includes lifestyle preference, expenses, mortgage liability, legal liaibity,and the asset value of the home, at least. Why would a person doing good financial planning not just include everything that is involved?

As a practical matter any significant asset value built up in a home is worth taking into account even if it is just sloughed off as a last ditch reserve of some kind. Put differently, if a person thinks the value of their home is meaningless, then I would like to be written into their will to inherit it.
I would hope any homeowner did recognize all the factors involved in owning a home. That certainly should be considered BEFORE a home is purchased. Only after that should anyone saddle themselves with a mortgage and other expenses a home entails.

My current home ownership started by having over 50% equity from day one. Our home and subsequent expenses haven't been much of a burden.

And, now our home equity doesn't account for a very high percentage of our wealth. So, maybe I increased our wealth via home ownership, maybe I didn't. We have enjoyed raising our family in a very nice, spacious home. So, the wealth angle of home ownership is pretty much a case of I really don't care, at this point in life. I suppose I could consider our home as a storage of wealth that might increase or decrease, but what good would that do me, or any kind of mental accounting.

Broken Man 1999
Keeping track is keeping track. That is just a matter of facts.

As to what good it does a person, that depends on your individual circumstances. I know some people who sold homes in HCOL areas and moved and rented in lower cost areas for whom the equity extracted from the home was huge relative to their new circumstances. I also know people who have gotten windfalls through the inheritance of a home when someone passed away.

The argument here in my comments is not about whether a home is a good investment or how to decide between renting and buying. It is just simply a statement that facts are facts and it doesn't make sense to me to ignore something that is there just because of some attitude about what one thinks about it.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by Sam1 » Fri Jan 11, 2019 11:10 am

The US housing market is a big racket supported by the government and tax policy. The ability to finance a home with a 30 year FIXED rate mortgage is probably the best gift you’ll ever receive from the US government.

Unfortunately, most people do NOT save or invest much and housing is a means of forced savings, which many on here have mentioned.

I know when I sell my home I’ll be given a very large check at closing. Of course we had to maintain the home and we’ve made improvements. But unless we have a housing crash, this check will be far more than the downpayment.

Whereas when we rented, all we walked away with was he security deposit.

Buying a means to lock in your housing expense. With normal inflation your housing expense will only decrease over time. Even if we weren’t to make a good profit on our house, I view our house as a means for us to invest a lot in the market. We are able to do so because our incomes have increased and our fixed rate mortgage has stayed the same. Like I mentioned above, this is possible through a fixed rate mortgage.

Also I highly doubt many renters are saving or investing much more, if any, than they would had they bought. I am not privy to personal finances of my friends but it’s been made apparent over the years that those still renting don’t have a downpayment saved up. Which means they haven’t been saving/investing much while they have been renting.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by jminv » Fri Jan 11, 2019 11:30 am

Jack FFR1846 wrote:
Thu Jan 10, 2019 11:01 am
Home equity has traditionally been the only way to get people to not spend every cent they make. Unfortunately, being able to pull equity out has become very easy, so even that no longer keeps many families above water. So in a "Leave it to Beaver" world, where the family buys a home and pays until they can burn the mortgage, sure....equity builds. Today.....not so much.
Funny story related to this. A family member in a position of trust always seemed to live beyond his means. Theories (conspiracies) were raised within the family as to where the money was coming from. I never bought into any of the theories but thought it probably had something to do with his wife. Later on when I was older and also interested in this mystery, I remembered that the family member pointed to his spouse and called her a financial genius. Later, I looked into it out of curiosity and found out that the wife was doing periodic cash out refinances on both their primary property and rental (later turned into a vacation home) and promptly spending the proceeds. The family member is 68 and continuing to work full time after a first retirement to meet his mortgage payments/family lifestyle. There's no home equity to speak of and no retirement date on the horizon.

regularguy455
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by regularguy455 » Fri Jan 11, 2019 11:38 am

I think this thread underestimates the systematic risk you hold with real estate. You are taking a leveraged bet on both holding land PLUS location-specific risks.

This is shown in this WSJ article about bag holders who bought houses on golf courses: https://www.wsj.com/articles/golf-home- ... ajor_pos22

These folks not only bought a house, they bought on a golf course. When golf became less popular (those darn millenials again!!! 8-) ) it crushed the home values that was independent of the overall real estate market. Anyone who was financially disciplined and bought in this area would've been wiped out in a way where 15 vs. 30 year vs. 5/1 ARM would not matter.

dbr
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dbr » Fri Jan 11, 2019 12:33 pm

regularguy455 wrote:
Fri Jan 11, 2019 11:38 am
I think this thread underestimates the systematic risk you hold with real estate. You are taking a leveraged bet on both holding land PLUS location-specific risks.

This is shown in this WSJ article about bag holders who bought houses on golf courses: https://www.wsj.com/articles/golf-home- ... ajor_pos22

These folks not only bought a house, they bought on a golf course. When golf became less popular (those darn millenials again!!! 8-) ) it crushed the home values that was independent of the overall real estate market. Anyone who was financially disciplined and bought in this area would've been wiped out in a way where 15 vs. 30 year vs. 5/1 ARM would not matter.
That is certainly true. As a risk proposition building wealth by owning a home is certainly dicey. Of course renting is risky as well as rents can become punitive in any particular area and leave one with a range of equally unpleasant alternatives. One response to this is rent control.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by dknightd » Fri Jan 11, 2019 12:50 pm

dbr wrote:
Fri Jan 11, 2019 12:33 pm
regularguy455 wrote:
Fri Jan 11, 2019 11:38 am
I think this thread underestimates the systematic risk you hold with real estate. You are taking a leveraged bet on both holding land PLUS location-specific risks.

This is shown in this WSJ article about bag holders who bought houses on golf courses: https://www.wsj.com/articles/golf-home- ... ajor_pos22

These folks not only bought a house, they bought on a golf course. When golf became less popular (those darn millenials again!!! 8-) ) it crushed the home values that was independent of the overall real estate market. Anyone who was financially disciplined and bought in this area would've been wiped out in a way where 15 vs. 30 year vs. 5/1 ARM would not matter.
That is certainly true. As a risk proposition building wealth by owning a home is certainly dicey. Of course renting is risky as well as rents can become punitive in any particular area and leave one with a range of equally unpleasant alternatives. One response to this is rent control.
If they liked golfing it could still work out for them. Less crowds.
Rent control should not be allowed.

harrington
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by harrington » Fri Jan 11, 2019 12:59 pm

Lot's of luck involved in my opinion. I built a home in WNY 17 years ago this March. It is a 2000 sqft. custom build and total cost with a 100 x 180 lot was $208,000. I just happen to build at a good time and prices for new builds were very reasonable. Just last week I had a realtor price my home at $350,000. Taxes have gone up from $5k to 8k currently. I don't include my house in my net worth even though it is paid off.

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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by tadamsmar » Fri Jan 11, 2019 2:49 pm

Home ownership is one way to get housing services. It should not be evaluated as an investment. It should be evaluated as a housing service.

"While homeownership is unlikely to be a good investment since individual homes tend to be very risky and provide almost no real returns, buying a home does secure housing services and helps create a forced savings opportunity, which is beneficial to accumulating wealth even though the savings is not providing a high rate of return."

https://www.forbes.com/sites/jamiehopki ... 23426e5c9d

regularguy455
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by regularguy455 » Fri Jan 11, 2019 4:51 pm

dknightd wrote:
Fri Jan 11, 2019 12:50 pm
If they liked golfing it could still work out for them. Less crowds.
Rent control should not be allowed.
That's an expensive amenity. From the article:
Meanwhile club fees were rising; Ms. Harrington said by 2016 her dues had climbed to around $24,000, up from less than $5,000 when she first joined. Feeling that the costs were unjustified, she stopped paying her dues. A number of other residents also stopped paying, and the club filed lawsuits to get them to pay.

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LadyGeek
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Re: Building Wealth Through Home Equity--Myth or Reality?

Post by LadyGeek » Fri Jan 11, 2019 4:57 pm

This thread has run its course and is locked (topic exhausted, no added value to continue). See: Locked Topics
Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
Also see: A reminder that non-investing general comment threads are OT
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