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How Many Years of Life Does That House Cost?

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Re: How Many Years of Life Does That House Cost?

#321

Post by njarboe »

AstralStorm wrote: post #279
njarboe wrote: post #236

Earlier quoted context omitted.

I agree credit can be very useful and good, but most people are not using debt to try an investment that allows them to pay back the debt and make some profit. They are buying consumables: dinners out, clothing, gadgets, vacations, cars, even housing is really a cost of something you are using. A depreciating asset and not an investment. I think it would be really good to use some of this education everyone gets to g…

The problem again is that consuming using available funds is not possible if you need to work 10 years of median salary for it - that in the more affordable states. The figures mentioned use full salary, in reality you might get some 50% of that possible to allocate to paying off the debt. You still get to pay utilities, cost of life for the family, transportation, education and probably extras. Note I've even ignore…

True; house prices are crazy high in some areas. A decent 3 or 4 bedroom house can be built for 100-200 thousand dollars. In these expensive places, land is the major cost. People can bid up the land cost of housing because of loans especially ones with low down payments. If people had to have %50 down, like not that very long ago, buying a house would be much more inline with incomes. Anywhere where rent is much cheaper than house payment + prop tax + upkeep, the prices are being push higher by home ownership subsidies/lock out of one kind or another.

Re: How Many Years of Life Does That House Cost?

#322

Post by chaostheory »

humanrebar wrote: post #288
chaostheory wrote: post #216

Earlier quoted context omitted.

I probably should have been more specific. People like NYC for different reasons, like the nightlife / club scene where the SF Bay Area doesn't compare at all. There's also culture that you wouldn't find outside NYC like the fashion industry and even art. That said NYC isn't for me either but it is for a lot of people, which is why people endure finance to stay there. Since we're on the subject, LA is another compara…

> My point is that you can't these qualities in the boonies and that's why it's expensive to live in these places. But lots of people are plenty happy in the "boonies". They just have different interests, like doing more outdoor-oriented activities like hunting, hiking, fishing, or building their own workshops from scratch. Or maybe they're more cerebral and like the peace and quiet so they can focus on writing. It's…

> But lots of people are plenty happy in the "boonies". They just have different interests

I don't disagree. Different people want different things. I'm just pointing out 1. why people like living in big metros and 2. the flaw of basing where you live entirely on the cost of living and real estate.

Re: How Many Years of Life Does That House Cost?

#323

Post by mabbo »

tiborsaas wrote: post #310
mabbo wrote: post #272

A better metric I like to use: how many extra years of work before retiring will this large expense cost me? (Admittedly: this does not work the same for housing for lots of obvious reasons). An example: a friend of mine is renovating the exterior of his house for $100,000. He plans to live there until he dies (it's a lovely house), so he'll never see that money again. He'll just have a nicer house. My alternative op…

Your friend is right. You can't put a price on the feeling that you live in the house of your dreams.

I'm not saying he's wrong. I'm saying it's worth comparing to other options.

And yes, you can put a price on a feeling. If it was $1,000,000, he wouldn't do it and neither would you.

Re: How Many Years of Life Does That House Cost?

#324

Post by MrFoof »

School-Cotton wrote: post #50
sp332 wrote: post #11

Earlier quoted context omitted.

The ability to repaint and punch holes in your walls. Having a lawn and some privacy from the neighbors. Not everyone is nomadic.

There are plenty of houses for rent. Rent doesn't imply apartment.

Moreover, talk to the person managing your apartment.

In my apartment (managed by a property management company at that), they allowed me to repaint some walls, bring in three appliances of my own (washer/dryer and dishwasher), completely customize a closet, and replace a light fixture. Took a week for the business manager and corporate to sign off on the modifications, but they felt the requests were entirely reasonable.

This happened because of two reasons: 1) I asked. 2) I agreed to pay a very modest additional deposit for the modifications ($400 total), and used suitably insured vendors of their choosing to have the appliances and light installed (they let me do the closet myself, as the paint with just a $100 deposit to cover changing it back), at a total cost of about $300.

To get this stuff elsewhere I would've paid FAR, FAR more in rent (+$1000-1500/mo, easily). Though I asked, was very reasonable, and made it clear that I wasn't looking to half-ass anything.

At the end of the day the new apartment was a tactical downgrade ($700/mo savings) from where I came from. With the new stuff I got approved I have "broken even" on my changes after 7 months. Now for the next 4-5 years that $700/mo savings just goes in my pocket, the apartment is now barely a downgrade from where I was prior, and I have top-notch appliances that most luxury rentals in the city don't even offer. Moreover, when I move out those appliances come with me -- I should get a good 15-20 total years out of them with proper care.

Re: How Many Years of Life Does That House Cost?

#325

Post by briankirby »

dahart wrote: post #319
astura wrote: post #317

Earlier quoted context omitted.

If we are using "anecdata" then I can say you'll never get your value out of your house - I personally know people who have sold their house for $5K, $20K, $30K, and $50K less than they bought them for. Hell, the entire city of Detroit, Flint, etc. has seen prices plummet so hard they are practically giving away houses and there is a huge arson problem - people are burning their houses for insurance money en mass. In…

I'm not sure what your point is. I claim that you get back more than 50% of your money more than 50% of the time. I believe the historical data nation wide agrees with that. When you rent, you get 0% of your money back. 0% is a worse return than x% where x > 0. 0% return is a lot worse than 50%. And there are plenty of people who get better than 100%, I'm not saying it's everyone, but it's a fact that it's common. So…

I think the point they were trying to make is that, even if you get a large portion of the sale price back, you don't generally end up with much more than if you had rented. Even if you make more than 50% of your money, as you claim is usually the case, this can be very comparable if not less than renting and investing the down payment in index funds.

Re: How Many Years of Life Does That House Cost?

#326

Post by ctchocula »

dahart wrote: post #316
astura wrote: post #298

Earlier quoted context omitted.

When I sell my house I'm not getting back all my property taxes paid, interest paid, closing costs, inspection cost, realtor commission, insurance payments, and routine maintenance costs.

Interest is a good point. But taxes are in the noise where I live, as is all the rest of your list. Either way, we could debate a whole bunch of minor costs, and it's obviously not the same for everyone. But that would be missing the point completely. If you sell your 500k house for a very very bad return of 125k, you will be 125k ahead of where a renter is. Renting returns nothing. Whether or not I get back 100% of…

I think this is an unfair comparison, because by choosing to buy a house rather than rent, you need to account for the opportunity cost of not investing the money you're paying into the mortgage in a stock market. Using the calculator here, over a period of 10 years with a measly S&P 500 annual return of 4.66% if you started out with 125k down payment and invested a mortgage payment of $3125 each month, you would have ended up with 927k. It seems to me that what you ought to be comparing is the growth of index funds (what most people should be investing in), and housing market in your area.

Regarding the example of people losing money selling a house in Detroit, it seems to me that by renting and investing the money you would have been putting into the mortgage, you are better able to diversify the risk of your housing area depreciating in price. However, there are areas that experiencing housing price growth better than stock market return, so there are advantages and disadvantages to renting vs. buying a house. By no means is it as clear-cut as you portray.

[1] https://dqydj.com/sp-500-dividend-reinvestment-and-periodic-...

Re: How Many Years of Life Does That House Cost?

#327

Post by dahart »

ctchocula wrote: post #326
dahart wrote: post #316

Earlier quoted context omitted.

Interest is a good point. But taxes are in the noise where I live, as is all the rest of your list. Either way, we could debate a whole bunch of minor costs, and it's obviously not the same for everyone. But that would be missing the point completely. If you sell your 500k house for a very very bad return of 125k, you will be 125k ahead of where a renter is. Renting returns nothing. Whether or not I get back 100% of…

I think this is an unfair comparison, because by choosing to buy a house rather than rent, you need to account for the opportunity cost of not investing the money you're paying into the mortgage in a stock market. Using the calculator here, over a period of 10 years with a measly S&P 500 annual return of 4.66% if you started out with 125k down payment and invested a mortgage payment of $3125 each month, you would hav…

It takes a pretty good return on an investment to make back what you lose on rent.

The point I'm making is that buying a house is an investment, and renting is not.

I've done both, I've rented for long periods of my life. In San Francisco, among other places. I've also bought two houses.

I wish I had seen the economics of buying much sooner, because renting is throwing money away. When I was younger I was comparing mortgage payments to rent, and it didn't seem to make much difference. But if I'd realized that rent is gone and mortgage payments come back, I'd have tried to buy much sooner.

Renting is more expensive than buying in every county I've ever lived, including SF. So the argument that you could rent and invest instead of buying doesn't make sense to me. If you can rent and invest, then you can buy and invest. As long as you can afford the down payment, which is the main barrier to entry.

In your example, I could end up with 927k, but you have to subtract your rent. If your rent is 3k/mo, then you'd have spent 375k on rent for a net return of 550k. And you had to pay both the 3k/mo investment and 3k/mo rent at the same time.

Chances are pretty good in some places that if you buy a house for 350k, after 10 years it will sell for 550k, and you could still afford the side 3k investment per month and get the 927k on top of it, for a total of ~1.4M.

It still seems really clear cut to me.

Re: How Many Years of Life Does That House Cost?

#328

Post by dahart »

briankirby wrote: post #325
dahart wrote: post #319

Earlier quoted context omitted.

I'm not sure what your point is. I claim that you get back more than 50% of your money more than 50% of the time. I believe the historical data nation wide agrees with that. When you rent, you get 0% of your money back. 0% is a worse return than x% where x > 0. 0% return is a lot worse than 50%. And there are plenty of people who get better than 100%, I'm not saying it's everyone, but it's a fact that it's common. So…

I think the point they were trying to make is that, even if you get a large portion of the sale price back, you don't generally end up with much more than if you had rented. Even if you make more than 50% of your money, as you claim is usually the case, this can be very comparable if not less than renting and investing the down payment in index funds.

If you can rent and invest, you can also buy and invest, right? The only way that renting is an investment advantage is the down payment, but you have to subtract your rent from your returns to see if it makes sense. In the example at the top of this thread, 6k/mo rent is 750k over 10 years. You have to have a very large down payment and very good returns consistently for 10 solid years to make that back.

Re: How Many Years of Life Does That House Cost?

#329

Post by briankirby »

dahart wrote: post #328
briankirby wrote: post #325

Earlier quoted context omitted.

I think the point they were trying to make is that, even if you get a large portion of the sale price back, you don't generally end up with much more than if you had rented. Even if you make more than 50% of your money, as you claim is usually the case, this can be very comparable if not less than renting and investing the down payment in index funds.

If you can rent and invest, you can also buy and invest, right? The only way that renting is an investment advantage is the down payment, but you have to subtract your rent from your returns to see if it makes sense. In the example at the top of this thread, 6k/mo rent is 750k over 10 years. You have to have a very large down payment and very good returns consistently for 10 solid years to make that back.

"If you can rent and invest, you can also buy and invest"

Not necessarily, the less you put into the downpayment the more you pay in interest, the less the calculation makes sense.

I'm not disagreeing that there are many scenarios, likely including the 6k/mo example, that buying makes sense. What I take issue with, and I imagine other commenters did as well, is the idea that "When you rent, your money is gone. When you buy, you normally get most or all of it back later." This is far too simple, and there are many cases where the two are equivalent or renting comes out on top. It's easy to find such scenarios in the NYT calculator [0], even when you assume your house goes up in value.

[0] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

Re: How Many Years of Life Does That House Cost?

#330

Post by matthewmacleod »

fbonetti wrote: post #283
matthewmacleod wrote: post #92

Earlier quoted context omitted.

Not necessarily – interest rates are exceptionally low in places. My own mortgage is around the 1% mark – it's more efficient to invest the money that would otherwise be used to pay it off. (That's not to say that there are no other reasons to pay off the mortgage – owning a home outright is a great security to have.)

1% is incredibly low. Where do you live, when did you take out the loan, and what are the terms? According to this[1] chart, the lowest 30 year mortgage rate in the past 40 years was about 3.5%. I'm curious how you got a loan with such a low rate. [1] https://fred.stlouisfed.org/graph/?g=NUh

The UK. The mortgage market is different; terms are rarely 30 years, but rather homes are often refinanced every 2-5 years for a fixed mortgage rate, which reverts to a higher variable rate after that period.

Of course, this means that if interest rates suddenly spike then my mortgage payment will go up. But it does mean that in the short term it would not make sense to pay more off.

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