By-and-large buying is a better investment over the long-term, although anything less than 5 years is somewhat of a crapshoot because of several key issues–selling costs (usually at least 6%) in addition to closing costs on the original purchase (usually about 3%) and lack of equity built/principal paid in the first 5-10 years of mortgage’s life. But most long-term holds (5+ years) give substantially better returns thanks to leverage. When you start getting into the Washington, D.C. area, NYC, Los Angeles, etc.–the obscenely expensive places to live–one can easily show that a disciplined person could be much better off by investing the marginal cash flow from renting compared to buying. However, few people would be disciplined enough to invest in the efficient market while not touching the cash. It’s why they call homeownership “forced savings”.
DanLieb Wrote: ------------------------------------------------------- > There used to be a ‘golden rule’ that people > should now go back to. This could have saved a > lof of the mess we got in to. > > The house you live in is NOT AN INVESTMENT. > PERIOD. > The house(s) you rent out IS AN INVESTMENT. Disagree. Buy a house and consider the money that you pay in as a savings account. Builds up your equity over time. You can’t do that if you are renting. Put another way. Pay yourself or pay someone else. Rent = outflow. Mortgage payment = inflow. It’s a good investment, possibly the best you’ll ever make. $1500 rent per month = $30000 in someone elses pocket per year $1500 mortgage payment = $30000 * % of principal repayment per year in your pocket = your growing equity stake YoY Now, the caveat is that there is clearly no point in paying way over the odds for an asset or stretching your finances. In that case, better to rent while you build up your deposit. The goal while renting is to minimise your outflows to accrue as much as you can as quickly as you can. Unfortunately in the last decade, many people have got caught up in the rent trap. Earn just enough to pay the rent and live, not enough left over to save for the deposit. Perfect for a landlord, awful for a tenant. Plus people like to life to a certain lifestyle. Not going to get that deposit if you want to have your starbucks double latte every day and so on. Also, consider the mortgage type. Clearly I am talking about a repayment mortgage not an interest only mortgage. I want to pay down the loan. Over time, the mortgage payments *should* diminish through inflation while the value goes up. In my mind, you should get on the property ladder before you even start investing in the markets. I bought my property in 2002, 8 years ago on a 25 year term with a mortgage of 220k. I have a flexible repayment mortgage and have been making overpayments (normally after bonus time). I now have 45k and a 4 year term left. I have more money on account today than my mortgage. I can choose to life rent free as of today. No more monthly outflows and now I can speculate in the markets with any future income. I’ll always have a roof over my head and that is a put on life.
By renting, all you are doing is paying your landlord’s mortgage. After years and years of renting, you won’t see a single dime back. You are literally building equity for your landlord.
You are missing the point completely. I was NOT advising that you rent. It is just improper to think of your house as an ‘investment.’
A friend of mine recently bought a house that was foreclosed upon in 2008. It’s been sitting on the market that long and so the bank has dropped the price twice. In 2007, the house sold for $120,000. My friend bought it for $65,000. He took out a $20,000 line of credit on it and improved it. It just reappraised for $125,000. He had a down payment of $13,000. Is getting $6,500 back for the first time home buyers. He is also getting a ton of tax credits for energy efficient improvements he made. That’s a nice return no matter whether you consider buying a house “an investment” or not. There aren’t too many “investments” that will give you that kind of return.
job71188 Wrote: ------------------------------------------------------- > He had a down payment of $13,000. Is getting > $6,500 back for the first time home buyers. He is > also getting a ton of tax credits for energy > efficient improvements he made. if by “ton” you mean $1500 then yes, its a ton 
thats the max- I know- its apr15 and I’m finishing mine up.
job71188 Wrote: ------------------------------------------------------- > A friend of mine recently bought a house that was > foreclosed upon in 2008. It’s been sitting on the > market that long and so the bank has dropped the > price twice. In 2007, the house sold for $120,000. > My friend bought it for $65,000. > > He took out a $20,000 line of credit on it and > improved it. It just reappraised for $125,000. > > He had a down payment of $13,000. Is getting > $6,500 back for the first time home buyers. He is > also getting a ton of tax credits for energy > efficient improvements he made. > > That’s a nice return no matter whether you > consider buying a house “an investment” or not. > There aren’t too many “investments” that will give > you that kind of return. Nicely done. This is essentially a leveraged buyout / restructuring situation of a house. A lot of times, when I explain to people that don’t work in finance what private equity or leveraged buyouts are, I find that this real estate analogy works really well. People might not be able to relate to fixing a screwed up company, but most people can identify with buying a run-down house using debt, fixing it up, paying down the debt load and monetizing your equity upon re-sale.
akanska Wrote: > if by “ton” you mean $1500 then yes, its a ton > > > thats the max- I know- its apr15 and I’m finishing > mine up. You’re right, I guess $1500 isn’t “a ton”. But he is still getting back $8,000 total in tax credits. That means his net investment into this house was about $5,000.
numi Wrote: > > Nicely done. This is essentially a leveraged > buyout / restructuring situation of a house. A lot > of times, when I explain to people that don’t work > in finance what private equity or leveraged > buyouts are, I find that this real estate analogy > works really well. People might not be able to > relate to fixing a screwed up company, but most > people can identify with buying a run-down house > using debt, fixing it up, paying down the debt > load and monetizing your equity upon re-sale. Agreed nicely done and I am looking for opps like this (still time left for that double dip, especially in the UK…). Also, nice analogy numi and one I am likely to borrow…!
I’m more into buying land near Austin, TX (Travis county) as a side investment with some extra cash. Nothing expensive and thinking very long term, more to my kids actually. Will see if I blew it or not. As my wife says: “Let’s see if all those diplomas are of any use, sweetheart”, lol.
Part-time Crook Wrote: ------------------------------------------------------- > I’m more into buying land near Austin, TX (Travis > county) as a side investment with some extra cash. > Nothing expensive and thinking very long term, > more to my kids actually. Will see if I blew it or > not. As my wife says: “Let’s see if all those > diplomas are of any use, sweetheart”, lol. Are you buying the mineral rights with the property rights? I know the two are frequently separated in Texas and think that the mineral rights supersede the property rights, so your plans to build might be put off by the mineral right owner’s plans to drill.
Honestly, I can’t say for sure. Those properties are small so I’d think their mineral interest is zero, but I think I’ll call a lawyer to be sure.
iteracom Wrote: ------------------------------------------------------- > MattLikesAnalysis Wrote: > -------------------------------------------------- > ----- > > “Also keep in mind, nearly 60% of all US > > millionaires were built on real estate.” > > > > ^^ assuming this figure is accurate, it is > scary > > and tells you something about the long-term > > expected performance from real estate. > > > > for example, what happens when we start working > 4 > > day work weeks and 3/4 of those days are from > > home? i could live in dearborn michigan and hold > a > > job in toronto if i wanted because i’d only > have > > to travel once a week. plus travel would be > cheap > > because i only do it once a week. getting rich > off > > of real estate is a thing of the past. when > buying > > and renting homes becomes something that every > > nitwit with a gr. 6 education starts to do, its > > destined to fail and lose to new technology… > > like the internet. > > > > and i would expect this to happen within our > > lifetimes… basically when Gen Y-ers become > > management. > > > While you do make a good point about technology > and yes it is always getting better. > There are some things that will never change, and > there are arguments fighting your logic that you > can’t win. > > Population. The chart for population is still very > much exponential growth even today. You can’t grow > land. Now imagine in 30 years… > > Location. Let’s say in the future > telecommunication becomes ridiculously good, and > you can work from home. Would you want to live in > a deserted place because it’s cheap? Or in a nice > city or town where access to everything is easy? > > Two people, 1 buys, 1 rents. After 20-30 years, > person 1 owns a house. Person 2 just has another > rent check to pay. There are huge tax incentives > to own as well using your logic, buying land would be a much better investment than a house, which i agree on. sure, living in a place where everything is accessible is a treat, but at what price? every decision involves money. if its 500,000k to live in a 1bdrm in a city and its 80,000k to live in a 5bdrm house outside of a city on a whack load of land, the incentive to live outside the city grows. odds are, in 50 years, the return on your 500,000k will be alot less than the 80,000k in the boonies. take the extra 420,000k and have some independence. the day we have 5g everywhere is the day when city house prices begin to decline dramatically. don’t discount outsourcing. look what citi did with its bo. look what all companies are doing with their bo’s. it is inevitable that demand for downtown office/rent space will decline, and prices will follow. and lets remember that when this day happens, you’ll be paid less on average, so the incentive to live outside the city will grow.
MattLikesAnalysis Wrote: > > using your logic, buying land would be a much > better investment than a house, which i agree on. > sure, living in a place where everything is > accessible is a treat, but at what price? every > decision involves money. if its 500,000k to live > in a 1bdrm in a city and its 80,000k to live in a > 5bdrm house outside of a city on a whack load of > land, the incentive to live outside the city > grows. odds are, in 50 years, the return on your > 500,000k will be alot less than the 80,000k in the > boonies. take the extra 420,000k and have some > independence. the day we have 5g everywhere is the > day when city house prices begin to decline > dramatically. don’t discount outsourcing. look > what citi did with its bo. look what all companies > are doing with their bo’s. it is inevitable that > demand for downtown office/rent space will > decline, and prices will follow. > > and lets remember that when this day happens, > you’ll be paid less on average, so the incentive > to live outside the city will grow. I don’t buy your argument. 1. Give me one example of a location where 1bedroom is 500,000 and right outside the city you can get a 5 bedroom for only 80,000. I’ve lived around NYC all my life and NOWHERE will you get that huge a price difference for a reasonable difference in living quality. You would have to go like hours and hours away to get your 80,000. And you can’t tell me, oh in the city I would live in a luxury building, and outside, I’ll live in the worst trashy neighborhood next to a jail. 2. And who said anything about paying cash? You said to “take the extra 420,000 and have independence”. I don’t believe the average starting analyst has 500,000 to pay cash. When you get a mortgage, you get interest tax shield, it’s FREE MONEY, guaranteed by our government. Riskless Money. 3. People pay to live in a really cool area that they like. I’ve lived in manhattan, now I live in a nearby city. Nothing will ever rival the village. EVER. like many people I would be willing to live there and pay a premium. That’s why the demand stays high for those places. 4. In the end, if you think about a home as a short term trade, it won’t look appealing. It’s not going to appreciate 20% in a few months as a penny stock might.
job71188 Wrote: ------------------------------------------------------- > A friend of mine recently bought a house that was > foreclosed upon in 2008. It’s been sitting on the > market that long and so the bank has dropped the > price twice. In 2007, the house sold for $120,000. > My friend bought it for $65,000. > > He took out a $20,000 line of credit on it and > improved it. It just reappraised for $125,000. > > He had a down payment of $13,000. Is getting > $6,500 back for the first time home buyers. He is > also getting a ton of tax credits for energy > efficient improvements he made. > > That’s a nice return no matter whether you > consider buying a house “an investment” or not. > There aren’t too many “investments” that will give > you that kind of return. Another nice anecdote. I’ll say my point more clearly. If you are concerned about the place you live in vs. investments, live with your parents.
As the housing bubble recently pointed out, don’t buy more house than you really need and then use it as your personal credit card, as someone seemed to be implying. But the idea of renting vs buying is largely a function of how long you plan to stay in that particular house. Of course, when your after years when your mortgage is paid off or relatively far lower than renting, you will be better off. But still, don’t think it should be thought of as an investment, because you won’t likely sell your house to live off that cash.