House - Remind Me Why? (1 Viewer)

[Joe Szott]

Jeff U -

You're twisting his example to get those numbers though. Ajay was saying that you take the extra money you would have put toward a mortgage into some sort of investment vehicle that makes 10% and reinvests in itself. So the mortgage is $1500 a month, the rental would be ~$1000 a month with $500 left over to invest. Over 30 years in any sort of tax free or deferred account will probably leave you with somewhere in the ballpark of $800K in cash to spend how you please at the end. Even if the house tripled in price during that period, you still had to pay these every year on top of the mortgage: homeowners insurance, property tax, maintenance (appliances, new roofs, landscaping, ?). The point being a house usually costs *more* than the actual mortgage per month, renting always costs exactly what it costs per month (rises once a year.)




You don't have to believe anything else we've said, to each his own.

PS - I'm being conservative with the 10% a year ROI. Assuming the money is diversified beyond just stocks.

 

[Ron-P]

Renting is a waste, period. Buying a house is a risk, yes, but not nearly as wasteful as renting. Sure there are better investments then a house and maybe some that are not as risky but buying a house is hardly wasting money.

 

[Jeff Ulmer]

I'm not twisting any numbers, I am comparing the ownership of property to renting and investing. Just because you are investing $500/month doesn't negate the $1000 you are essentially giving away on rent.

There is no investment vehicle that will net you 10% that is as secure as real estate. To net 10% means a diverse portfolio with a good percentage being high risk stocks. Should the market crash, which it does, anything you have earned is simply gone. 10% of nothing is still nothing. If you are making money on the markets, someone is losing it.

 

[AjayM]

And real estate isn't a 10%/yr vehicle either. The DJIA goes up by more than 10% per year in the long term, that's a pretty damn safe investment (not quite as safe, but not far off either). If I want to do high risk investing than my gains can be MUCH higher, like hundreds or even thousands of percent returns if you get real lucky, but as you said, it's a high risk and you can come back with huge net losses. But as mentioned, the rewards can be huge, $2000 invested in the Microsoft IPO would be worth around $750,000, that's what almost a 40,000% increase over 15 years (but that's a risky buy, and a "prime" example)?

The housing market goes up what, 5 maybe 6%/yr over the long term....a 30yr bond does about 5%.

So again;
buy a house because you like the "ownership" aspect, buy a house because you can do as please with it, buy a house because you like living there, buy a house because it has a nice view out the window or because it's in a great school system for your kids, essentially buy a house because it's where you want to live. Do not buy a house "solely" for the investment side of it, yes you will make money on a house purchase 99% of the time, but consider it a perk. But from an investment perspective it is not a "great" investment (again, speaking solely from a making money perspective).

Andrew

 

[Ron-P]

Ok, I was reading you wrong. We were on two different pages. I do agree with your statement above.

 

[Todd Hochard]

This is something I'm worried about. I'm currently about to relocate from Orlando, to Northern VA, and I'm paying what I feel is a ridiculous price for a home. Oh, well, I suppose- I was able to negotiate the salary to afford it. Hopefully, the market won't turn against me.

Todd

 

[Scott Merryfield]

One item to keep in mind when making these calculations -- that $500 difference between your monthly mortgage and rent is before the income tax breaks you receive for mortgage interest and property taxes. So, that $1,500 per month expense before taxes will be closer $1,000 per month after taxes if you assume a 30% tax bracket (combined federal and state) and only $100 per month going to the principal of the loan. That would make your final monthly out of pocket expenses for buying vs. renting almost equal, yet you have nothing to show as an investment for your rent, while the home owner also reaps the benefits from appreciation of his/her property.

 

[Todd Hochard]

That's a bad assumption, because the standard deduction will be higher than the itemized deduction for a home up to $175k or so, at today's rates, and typical taxes.

 

[BrianW]

Carl, Scott (HH) is right. I bought a condo in 1984, and that is my biggest regret in life. Remember that when you buy a house, much of your payment goes into someone else's pocket as interest anyway, as Joe pointed out, so that $200,000 you say you put in someone else's pocket would be reduced by only $50,000 in equity. The other $150,000 you would have "put into someone else's pocket" even if you had bought a home. And if you had bought in the mid 80s, that $50,000 in equity would probably be wiped out by the subsequent housing bust. I lost more than that on my condo.

So stop regretting. Things wouldn't be that much different if you had bought when you wish you had. If you're able, just add $100 to each mortgage payment if you want to shorten the life of the loan. Even a little bit extra -- just a few dollars or whatever you can afford -- early in the loan goes a long way in shortening the length of the mortgage.

I'm of the mind that you have to live somewhere, and you may as well be buying the roof over your head if you can swing it. I think of my house as a consumable item, not an investment. If I sell it for a profit, where am I going to live?

 

[Eric Kahn]

Paying a mortgage is like paying rent but unlike rent, in the end you can get something back by selling the house, the rent is gone forever

location is everything, and I picked the wrong one, paid 75K for my two family (converted 2 story shotgun house) and I might get 75 K if I sold it, but my payment of 750 a month (principle, interest, taxes and insurance, including 50 a month for flood insurance) is about the same I would be paying in rent and I most likely would not have a 2 car garage with any Apt.

And my current Tenant does not care how loud i turn up the stereo

 

[Scott Merryfield]

That also depends on other factors. If you could itemize anyway without a house, then all homeowner deductions can be counted at their full tax break value.

Regardless, there is no tax break for renting unless you have a very low income, so the monthly difference in expenses is less than represented in the examples listed in this thread.

 

[Scott Tucker]

As far as California goes, My parents bought a home in San Diego in 1970 for 35k. The same house today is now selling for 1,000,000. They have no house payment. My Grandmother in Los Angeles rented that whole time and recently died with Nada.
If renting is so smart, why does Donald Trump keep BUYING real estate?

 

[Todd Hochard]

Hasn't Trump run through bankruptcy a couple of times?

 

[Jeff Ulmer]

Sure, sectors of Trumps businesses have, and bankruptcy should be an option in any business plan. It basically allows you to keep operating your business without having to pay out to creditors or liquidate holdings, and can be very useful in doing financial restructuring.

 

[ScottHH]

Trump has nothing to do with this discussion whatsoever. It's a corporate restructuring, and it's about his casino company being overleveraged. But, I think it's fun to see just how smart/squirrelly the guy is, so here's the current bankruptcy plan: "Chairman and Chief Executive Donald Trump will get 26.22% of the stock in the post-bankruptcy company and other shareholders will receive a mere 0.05%." And bondholders are taking a haircut as well.

 

[AjayM]

There is a huge difference in what Trump or any other real estate mogul does. He doesn't buy a property and keep it for 30 years to realize fairly small gains (as investing goes anyway). He buys a property, dumps a bunch of money into it (either renovating or rebuilding) then sells it for a profit (which is what most real estate moguls do).

The same thing on a smaller scale would be to buy a really crappy, run down house for say 50% under market value, dump another 25-35% into it and sell it right away for the gain (ie: Buy it for $100k, dump $50-60K into it, sell it for $200k = $40-50k profit). Or in other case would be to buy a run down apartment complex, dump a bunch of money into it to bring it up a notch or two on the "luxury" scale, then rent it out for bigger money each month.

 

[Todd Hochard]

...never mind the investors who ultimately take a bath on that sort of plan, I guess.