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Why a house is a terrible investment (2013)

jlcollinsnh.com

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Re: Why a house is a terrible investment (2013)

#21

Post by asfasgasg »

I am generally sympathetic to the idea that homes are a bad investment. The fundamentals are terrible, as discussed in the article, the most important one probably being the lack of diversification. But I wonder how it meshes with the results proposed by the article "The Rate of Return of Everything." That article found that housing has only slightly underperformed stocks as an investment.

Now, obviously, if you're living in your house, you're not going to get nearly the same return -- this is the total return on housing, so a house you're living at could be expected to provide returns on average as listed, minus the annual value of rent. But that means its overall performance as an investment is actually better than observed appreciation.

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

Re: Why a house is a terrible investment (2013)

#22

Post by megaman22 »

Simulacra wrote: post #6

I bought a house in 2015 (at 32) and it was the best thing I ever did. Even though I had to move away, I turned it into a rental property, and it’s earning $380 a month in profit. I’ve been using that profit to pay down the principal and add to my 401(k). My only regret is that I didn’t buy a lot sooner.

The sneaky best thing to do is buy a small multifamily unit, live in one, and rent the others. One of my coworkers at the time I bought my building was shopping single-family homes in the exact same price range, and we have almost the same monthly costs. The difference being that my tenant essentially pays my mortgage, and I only have to pay the taxes and insurance. Down the road, when I have a family and buy a real house, the rental will bring in $3k or more every month.

Re: Why a house is a terrible investment (2013)

#23

Post by jeremymcanally »

Every house I've ever owned has (a) cost way less per month than rent (I know it will cost less, but I mean on the order of nearly 50% less) and (b) appreciated enough after a short time that it made a sale worth it. The first house we owned appreciated by about $25k in 2 years, and the house we're in now (according to comps we just ran as we're preparing to sell) has appreciated about $80k+ in 3 years.

You can make smart property choices, even for the home you occupy (i.e., not just rental properties). But "smart" includes evaluating all the criteria. If you live in an area with a ridiculous property market (e.g., the Bay Area) or a very, very slow one, then the investment isn't as enticing. I'm blessed to live in a market with a lot of movement for a variety of reasons, not just being a "hot" area to live in, but others are not so much. I'm also blessed to work remotely, so I can choose to live in an area like this. :)

tl;dr: this is probably true in a lot of America, but it's not universal by any means.

Re: Why a house is a terrible investment (2013)

#24

Post by 0x00000000 »

wl78393 wrote: post #2

"Don't worry millenials! You didn't really want a house anyway, it's a terrible idea! Keep paying those student loan payments and renting!" -- Retired boomer with $1MM+ equity in their suburban California home purchased in 1975 for $10k.

*with 1975 property tax locked in thanks to prop 13

Re: Why a house is a terrible investment (2013)

#25

Post by Simulacra »

awat wrote: post #8

As a younger millennial I find myself far more interested in a home from a Maslow’s hierarchy perspective than an investment at this point.

Yes! Tbh I wasn’t really all that interested in buying. I finally gave in after spending a summer working with the homeless, and reading a Priceonomics article about David Raether. I got really afraid.

https://priceonomics.com/what-its-like-to-fail/

Re: Why a house is a terrible investment (2013)

#27

Post by briandear »

curuinor wrote: post #10
Simulacra wrote: post #6

I bought a house in 2015 (at 32) and it was the best thing I ever did. Even though I had to move away, I turned it into a rental property, and it’s earning $380 a month in profit. I’ve been using that profit to pay down the principal and add to my 401(k). My only regret is that I didn’t buy a lot sooner.

I mean, in the past 7 or so years, all the boats have been rising. What would your returns have been if you put them in stocks? How great was and is the risk you take by taking tenants versus the risk you take by buying stocks?

With stocks you don’t get leverage. Cash on cash return on real estate far exceeds stocks. If you put $20k down on a $100k house and you profit $300/month, that’s $300/month on a $20k investment, NOT against a $100k investment. That’s 18% per year not counting the equity as well as (possible) capital appreciation. Not to mention the tax advantages due to depreciation. Stocks are nowhere close. If you have a property manager charging 8% of the rent, you then have a cash flowing asset with almost zero hands-on work.

Re: Why a house is a terrible investment (2013)

#28

Post by Overtonwindow »

0x00000000 wrote: post #24
wl78393 wrote: post #2

"Don't worry millenials! You didn't really want a house anyway, it's a terrible idea! Keep paying those student loan payments and renting!" -- Retired boomer with $1MM+ equity in their suburban California home purchased in 1975 for $10k.

*with 1975 property tax locked in thanks to prop 13

Is that accurate? Property taxes can change

Re: Why a house is a terrible investment (2013)

#29

Post by curuinor »

briandear wrote: post #27
curuinor wrote: post #10

Earlier quoted context omitted.

I mean, in the past 7 or so years, all the boats have been rising. What would your returns have been if you put them in stocks? How great was and is the risk you take by taking tenants versus the risk you take by buying stocks?

With stocks you don’t get leverage. Cash on cash return on real estate far exceeds stocks. If you put $20k down on a $100k house and you profit $300/month, that’s $300/month on a $20k investment, NOT against a $100k investment. That’s 18% per year not counting the equity as well as (possible) capital appreciation. Not to mention the tax advantages due to depreciation. Stocks are nowhere close. If you have a property…

But the article does note that there's a gigantic subsidy on the leverage for stupid reasons, and the huge amount of leverage is obviously and empirically dangerous.

Re: Why a house is a terrible investment (2013)

#30

Post by mancerayder »

david-gpu wrote: post #3
wl78393 wrote: post #2

"Don't worry millenials! You didn't really want a house anyway, it's a terrible idea! Keep paying those student loan payments and renting!" -- Retired boomer with $1MM+ equity in their suburban California home purchased in 1975 for $10k.

HN guidelines discourage these sort of shallow dismissive comments. Reading a constructive rebuttal would be more interesting.

While snarky, he made a point about material interest differences between two generations.
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