Renting out the house is good in the sense that you don’t pay the transaction cost of selling. However, there are many reasons why you would not want to invest in single unit residential real estate (illiquidity, non divisibility, low yields, negative cash flow, lack of diversification, etc.). Furthermore, the house tends to be the dominant asset for many people, and not selling the house might mean they can’t do other things they want to, like buying a different house.
If you are forced to move prematurely after buying a house, your options are not zero. However, those options are generally less desirable than having not owned the property to begin with.
Yeah, this is absolutely true. (Though I’ve found it to be closer to 1% of my home’s value, but whatever.) Saving for the inevitable new AC unit/hot water heater/main sewage line replacement that happens every year is a must. Gotta build that into your budget.
i feel that the sweet spot is when rental rate is equivalent to the interest rate.
Consider 5% rental rate. and 5% interest rate.
buying will get you the opp cost of rent at 5%, plus the appreciation of the property at 3%. so 8% total come up. mortgage payments will prolly be 6.5% ( keep in mind a portion of this is paying down principal, and it will increase every year) so 1.5%.
renting on the other hand will just experience that market return of 10%, but you have to divide by 5 since you are only using 20% down payment to invest. so really you are coming up 2%.
you can adjust for other factors like maintenance hoa prop taxes, tax deduction etc etc.
my gut tells me for this scenario. anything less than 3% is bad. 4-5% is ok. 6%+ is good.
Most people spend nearly 90% of what they earn, if not more. House is forced saving vehicle, and good one at that. Otherwise a lot of people would be completely broke when they retire
Houses are crappy investments. Which is why banksters sell them to the masses, the masses are broke, and the banksters have all the money. But, the average person doesn’t have very good opportunities, so maybe a house is the best for them.
I’d buy the bank’s stock, ride the profits from their stealing from the masses, and then buy a house with cash once loaded (just to diversify).
That’s true. It’s a bad deal, but relative to their next best opportunity (spending it all at the local mall and ending up with nothing), it’s the best thing going.
In a similar situation. In a couple years I may need to move to Boston for work related reasons, looking forward to it.
My HELOC rate is actually slightly more than my mortgage right now. House has appreciated ~45% since purchase in 2009. Levered return on down payment is 220%, 15.5% annualized approximately on a borrow rate of 3.5%. Seems like a pretty good deal to me.
Like anything in life, you need to go into buying property with a plan. I absolutely look at it as an investment and try to take into account timing, neighborhood trends and what sort of control I may have to increase the value of the house, block or neighborhood.
i disagree. houses are amazing investments. they typically have modest appreciation, rents are pretty stable and sticky, it is fairly easy to find a tenant, and worst case there is always a last resort tenant (you). and you can lever up to 25x your down payment. the issue is usually the price or the rate of interest or both.
i have similar stats to above. i bought in 2012. you prolly need to adjust for the interest you paid, hoa, etc etc, but the cagr is still a lot. the fha loan i got was around 4.5%. 9% rental yield at time of purchase. so about 4.5% net/year + appreciation of 8%/year. so 12.5% unlevered. i put 3.5% down as well.
The 100yr price appreciation for US real estate (Shiller index) is around 3%. So it barely keeps up with inflation, and then a net loss when you take into account all the costs of maintaining that “asset”. It’s basically just a store of value, as was mentioned, a forced savings account.
Nobody buys the US real estate market in this context. They buy a single property. These transactions, like options, have a winner and a loser. Information asymmetry and control have a massive influence on the outcome. Didn’t think I had to explain that.
i built a gym in my third bedroom, i tricked out my garage, im building a strongman setup under my deck. show me a rental where you can modify your current living arrangements?
Also, each year i dont need to sign a rental agreement, negotiate any increase, or look for a new apartment. i can throw parties, have a pet, install a bidet, in other words do whatever i want.
what you need to account for are the intangibles that are not easily quantifiable.
Oh and a quick stab at PA - your dabbling on volatility trading through etfs - you def are not maximizing value…
You bought into a lifestyle. Which is totally fine but that doesn’t make rent (and invest in public equity instead) vs buy numbers necessarily in favor of buying… Not every time at least.
yup which is why its a silly debate to begin with imo, everyones situation is so different & everyone places different values on different things. that said a lot of people i know are looking at properties right now & my advice is to wait a year or two or three as RE is definitely late cycle and you could certainly get better deals on new construction on condos/homes when builders/developers are hurting due to cap rate expansion & the number of projects shrinking.
NYC market specifically rents are down pretty substantially from peak when you take into consideration the fairly generous concessions & lofty amenities needed to attract tenants currently.