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Why a house is a terrible investment (2013)

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

#51

Post by smnrchrds »

013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

> I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment.

This would only make sense if you want to live in a place indefinitely. When the economy here (Alberta, Canada) tanked due to falling oil prices, people who were renting and were laid off simply gave their 1-2 month notice to their landlord and moved to Montreal or Southern Ontario for better employment opportunities. Those who owned could not do that without taking a huge loss, selling their house for less than the price they bought it for, potentially less than the remaining mortgage obligation, potentially leading to their bankruptcy. As for renting it out? Forget about finding a tenant in that economy. And even if they did, how could they manage a property from the other side of the country?

Mobility is worth more than zero. If you think the economy in the place you are living is going to be good for the rest of your life (or at least the rest of your mortgage term) and you are certain you would not want to move during this time, go ahead and buy a place. Otherwise, it makes sense to rent.

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

#52

Post by imron »

dawhizkid wrote: post #19

For a lot of people the "investment" piece of owning their home is secondary to having a home to live in and raise their family in. Especially in the US, there are tax benefits to owning, and depending on the market owning could make more sense than renting.

Exactly. A house is more than an investment, it's a place to live. My sister and her family are living in their 3rd home in as many years because the owners of the places they are renting keep selling and don't renew their lease.

Then it's a hectic couple of months of finding somewhere new (but close enough to the same location so kids don't have to change schools) packing up everything in to boxes, moving and unpacking everything. It's 2-3 months of hassle they would love to avoid. Not everyone is buying a house as an investment.

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

#53

Post by smt88 »

jameshart wrote: post #46
013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

I find myself wondering what, with a similar approach to analysis, would ever qualify as a good investment. Certainly stocks are out, given their volatility, the individual investor's inability to ever compete with professionals, the brokerage fees, and the taxation of any gains you make. Owning your own small business? Goodness, you have taxes, expenses, and the continual risk of losing everything if you become sick…

There is some unfortunate truth in the idea that individual, non-wealthy investors have very few opportunities for great investments

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

#54

Post by [deleted] »

mdorazio wrote: post #36
013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

> which would often easily amount to less than rent. Hang on a minute there. Big citation needed, or caveat for which locality you're talking about. In LA or SF, for example, the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment. And that's after the huge assumption that you can even afford the up-front cost needed to buy a house in the firs…

[deleted]

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

#55

Post by smallnamespace »

Spooky23 wrote: post #35

This logic is so specious. Renting and owning from a cash flow perspective are usually pretty close, and you need to live, so a suboptimal investment with any return is better than making a landlord money and investing the scraps into 401ks. I’m in my late 30s and missed the gogo crazy years. But everyone I know in my age cohort has had a positive, meaningful ROI in trading houses up at least once. The supposed flexi…

> The supposed flexibility of renting is overrated as well.

Plus there's nothing keeping you from renting out your property and then living somewhere else.

You lose some of the nicer deductions and time spent being a landlord, and that certainly hurts ROI, but it's definitely not the case that you must live in what you own.

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

#56

Post by base »

013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

Those $132.000 could into another investment like the SP500 and you could get 2.6x times the investment over a 10 years period (average return of 10% with dividends). This would pay the rent + provide you a return.

I don't agree with all the points of the author as there are many factors to have into account when making the best financial decision. But rent can't be just seen as a negative investment, it's a cost that makes a person free to move their money into investments that provide a better return.

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

#57

Post by asfasgasg »

jameshart wrote: post #46
013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

I find myself wondering what, with a similar approach to analysis, would ever qualify as a good investment. Certainly stocks are out, given their volatility, the individual investor's inability to ever compete with professionals, the brokerage fees, and the taxation of any gains you make. Owning your own small business? Goodness, you have taxes, expenses, and the continual risk of losing everything if you become sick…

Stocks lack most of the weaknesses listed in the article. Point by point . . .

- Not an ongoing drain on cash.

- Liquid.

- Cheap to buy and sell.

- Simple to buy and sell.

- Have historically generated high returns. (Although see my earlier comment for questions about whether this truly distinguishes stocks from housing.)

- Normally not leveraged.

- Normally not mortgaged.

- Often productive (dividends).

- Mobile. You can sell it to anyone in the world.

- Many large corporations are multi-national, and certainly immune to any event that would occur at a neighborhood level.

- Do not discourage you from moving to seek better opportunities.

- Stocks can be pretty cheap. Shares of good ETFs are in reach of anyone.

- Require no ongoing maintenance.

- Relatively immune to local or even global weather.

- Generally tax efficient, especially if held in a retirement account.

- Not subject to eminent domain.

What about this analysis makes you think that stocks fare poorly in it?

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

#58

Post by hrktb »

smnrchrds wrote: post #51
013a wrote: post #16

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is…

> I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. This would only make sense if you want to live in a place indefinitely. When the economy here (Al…

To chime in, being able to move to smaller or bigger places depending on your family needs, or closer/farther from big cities depending on your priorities of the moment are huge advantages.

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

#59

Post by dawhizkid »

smallnamespace wrote: post #49
mdorazio wrote: post #36

Earlier quoted context omitted.

> which would often easily amount to less than rent. Hang on a minute there. Big citation needed, or caveat for which locality you're talking about. In LA or SF, for example, the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment. And that's after the huge assumption that you can even afford the up-front cost needed to buy a house in the firs…

> the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment Yes, but rental prices also change over time, whereas your mortgage payment doesn't (although the tax deduction falls over time, and your locality may up your property taxes, but these are fairly minor components). If you have reason to believe that rent will continue to increase (eithe…

~72% of rentals in SF are rent-controlled units (capped increase at As someone who doesn't plan to indefinitely stay in the Bay Area, I'm very happy renting a rent-controlled unit.

https://www.quora.com/What-percentage-of-San-Francisco-apart...

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

#60

Post by curuinor »

toomuchtodo wrote: post #47
asfasgasg wrote: post #32

Earlier quoted context omitted.

You don't really need to do both to diversify. There is a lot of exposure to real estate in the stock market (rental companies + commercial real estate + construction), and REITs can be used to gain more exposure if desired.

I can manage my real estate risk better (IMHO) in a rising interest rate environment better than a REIT can (and I find most REITs to be overvalued, specifically O). My cash on cash returns are better as well.

Yeah, but can you diversify by location better by yourself than a REIT? Lots of cases of individual cities and neighborhoods going to pot while the rest of the nation and world prosper
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