Why a house is a terrible investment (2013) • Hacker News Board

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

#91

Post by toomuchtodo » Mon, Apr 23, 2018, 1:54 AM UTC

curuinor wrote: post #60

toomuchtodo wrote: post #47

Earlier quoted context omitted.

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

My goals differ from a REIT slightly in that I want a quality return on investment, but also want to be able to live in my properties around the world as time permits (I’m a remote worker).

Returns vs utility is an acceptable trade off for me.

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

#92

Post by Simulacra » Mon, Apr 23, 2018, 2:05 AM UTC

asfasgasg wrote: post #50

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 bought a house in 2013 and sold it in 2016 for a total return of probably close to 50% -- not including leverage, after factoring in avoided rents and all costs. If you include the leverage, the ROI was probably >100%. What's more, the cash I invested was at the moment of my investment significant with respect to my net worth -- something like 33%. So this was a great outcome. However, that does not mean I made a w…

My leverage wasn’t that bad. To close I had to spend about $4,000. No down payment. It’s an FHA 30-year fixed at 3.85%, so I bought really at the bottom of the market. I’ve got a great tenant and about to renew them for another year with no increase in the rent. The income from that has been a god send and I’m net positive on expenditures. I’ve managed to get 3 months ahead on the mortgage payments to account in case I DO have a vacancy and need time to find soenone. I just got extremely lucky. I bought out of a fear of being homeless (for whatever reason) and to secure a foudnation for myself as I grow older. It’s become much more and I’ve learned a helluva lot.

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

#93

Post by Simulacra » Mon, Apr 23, 2018, 2:08 AM UTC

ckdarby wrote: post #61

Simulacra wrote: post #25

Earlier quoted context omitted.

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/

This article didn't scare me just shined the light that people are truly not willing to sacrifice. They had a $500k nest egg and living in a 4000 sqf home. The decision could have been to sell the home, downgrade to a home half the size, cut all 'future children investments' and lived a frugal life. The best future investment that could have been made here is living within the reality of the numbers.

Absolutely agree. He should’ve downsized and cut expenditures, but for whatever reason (maybe hubris? Pride?) he allowed things to get out of control. For me, I know that I can get a job at Home Depot and make the mortgage payments, and that’s why I stuck with something small and affordable.

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

#94

Post by Flozzin » Mon, Apr 23, 2018, 2:11 AM UTC

jopsen wrote: post #82

sulam wrote: post #72

Earlier quoted context omitted.

You know what's worse than homes when it comes to investments? Kids! They don't give you any return on investment at all until possibly late in life, depending on your culture and relationship (better hope they stay near you) and they make you a lot less mobile, both in terms of geography and career opportunities. They suck up a lot of your income and they probably shorten your life span due to lost sleep in the earl…

Buying a home is a bad investment, that doesn't mean you shouldn't do it :) Just don't do it as an investment.

I think a lot of people miss this point. A home isn't an investment. It's a place to live. There are studies I have seen that show that your children do better in school if you have a house vs an apartment. There could be other variables there sure. But the main reason I hear to buy a home is to 'invest in your future'.

Personally, I live in an apartment. I don't want the upkeep costs and time associated with a house. Even if I were to find a place to buy with a mortgage similar to my rent, I would then have upkeep costs on top of that. No thanks. I'll let someone else do all my maintenance, mowing, and snow removal, thank you very much.

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

#95

Post by asfasgasg » Mon, Apr 23, 2018, 3:35 AM UTC

Simulacra wrote: post #92

asfasgasg wrote: post #50

Earlier quoted context omitted.

I bought a house in 2013 and sold it in 2016 for a total return of probably close to 50% -- not including leverage, after factoring in avoided rents and all costs. If you include the leverage, the ROI was probably >100%. What's more, the cash I invested was at the moment of my investment significant with respect to my net worth -- something like 33%. So this was a great outcome. However, that does not mean I made a w…

My leverage wasn’t that bad. To close I had to spend about $4,000. No down payment. It’s an FHA 30-year fixed at 3.85%, so I bought really at the bottom of the market. I’ve got a great tenant and about to renew them for another year with no increase in the rent. The income from that has been a god send and I’m net positive on expenditures. I’ve managed to get 3 months ahead on the mortgage payments to account in case…

I'm sorry, but the numbers you're putting out there indicate that you might be a person who does not understand how to value their investment property. The typical baseline number to have is one of the expected or historical cap rate. The terms of your mortgage and down payment are almost wholly irrelevant. And leverage is often considered good in real estate investing.

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

#96

Post by abootstrapper » Mon, Apr 23, 2018, 3:35 AM UTC

This is such a line of bullshit they’re feeding the millennials. They want you to work without benefits in the “gig economy” and rent forever. Don’t fall for it.

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

#97

Post by timr » Mon, Apr 23, 2018, 4:18 AM UTC

DrScump wrote: post #75

sulam wrote: post #73

Earlier quoted context omitted.

I sold my primary residence after buying a new primary residence. California. Homes are heavily taxes if you don't live in them, to the above poster's point.

Then you face capital gains taxes if your home appreciated over your cost basis. Property taxes also apply to home ownership.

Yeah, the parent is being willfully obtuse. Property taxes are taxes that you have to pay merely for holding your investment.

Until this year, you could deduct those taxes up to your total federal tax liability (which may be what the parent is saying), but now you're limited to $10,000. Either way, it's a lot more burdensome than most investments.

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

#98

Post by asfasgasg » Mon, Apr 23, 2018, 4:37 AM UTC

ajross wrote: post #85

tofu8 wrote: post #77

Earlier quoted context omitted.

Mortgage is leverage (debt) and that can be bad. When you buy a house you speculate, to some degree, on the price of the house. I am sure a no-arbitrage condition exists in the housing market so your guess regarding housing prices in 10y is as good as anyone's. Also, the point about diversification is a valid concern. Would you put (50% of your net worth + loaned money) into only FB/AMZN/XYZ stocks, today (tomorrow)?…

Sorry, no. Leverage by itself does nothing to make an investment good or bad, as you say. Arguing that a leveraged investment is bad inherently is simply wrong. Doing so when the interest rates are regulated at a near-prime level, the interest is untaxed, and the downside loss is capped by foreclosure and bankruptcy laws a much less than the loan amount is flipping insanity. Like I said, I actually am on your side th…

> But houses in all but a few markets are and remain "good investments" by any reasonable interpretation. To argue otherwise is to argue in bad faith. Stop it.

What about the interpretation that I don't want to be subject to price fluctuations of a single object that represents a large fraction of my net worth? The argument that I might not wish to manage a property? The argument that I don't want to avail myself of the opportunity to be foreclosed on because I would like to maintain my credit? All those seem reasonable enough to me as factors to consider in defining a good investment (obviously subject to any individual investor's utility function).

Personally I think what should stop is you accusing anyone who disagrees with you of arguing in bad faith.

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

#99

Post by ajross » Mon, Apr 23, 2018, 5:27 AM UTC

asfasgasg wrote: post #98

ajross wrote: post #85

Earlier quoted context omitted.

Sorry, no. Leverage by itself does nothing to make an investment good or bad, as you say. Arguing that a leveraged investment is bad inherently is simply wrong. Doing so when the interest rates are regulated at a near-prime level, the interest is untaxed, and the downside loss is capped by foreclosure and bankruptcy laws a much less than the loan amount is flipping insanity. Like I said, I actually am on your side th…

> But houses in all but a few markets are and remain "good investments" by any reasonable interpretation. To argue otherwise is to argue in bad faith. Stop it. What about the interpretation that I don't want to be subject to price fluctuations of a single object that represents a large fraction of my net worth? The argument that I might not wish to manage a property? The argument that I don't want to avail myself of…

> What about the interpretation that I don't want to be subject to price fluctuations of a single object that represents a large fraction of my net worth?

That only makes sense if you bought the house in cash or if someone is willing to loan you money at 4-5% to buy stocks. Investments aren't zero sum when the government is effectively underwriting your mortgage.

This article is total woo. Sorry.

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

#100

Post by sulam » Mon, Apr 23, 2018, 8:39 AM UTC

DrScump wrote: post #75

sulam wrote: post #73

Earlier quoted context omitted.

I sold my primary residence after buying a new primary residence. California. Homes are heavily taxes if you don't live in them, to the above poster's point.

Then you face capital gains taxes if your home appreciated over your cost basis. Property taxes also apply to home ownership.

Capital gains didn’t apply because of the unique rules around primary residences — our new home cost more than the old. In fact it’s better than other investments in this particular way!

Regarding property tax, yes, but dividends are taxed as well and you generally are going to pay capital gains in the specific situation I’m describing if you replace “primary residence” with “stock”. Primary residences with mortgages have better tax treatment, really. If it didn’t I wouldn’t have a mortgage.