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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)

#101

Post by sulam »

DrScump wrote: post #84
pragmatic wrote: post #80

Earlier quoted context omitted.

Do I have to pay taxes on the profit I made selling my home? It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxa…

up to $250,000 of profit is tax-free You get that exemption once in a lifetime . (If you are married filing together, that's once for both parties .) If your profit isn't 6 figures, choose this option carefully.

This is incorrect.

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

#102

Post by Spooky23 »

DrScump wrote: post #74
sulam wrote: post #69

Earlier quoted context omitted.

I recently sold and bought a house, and as far as I know I paid no taxes on it, and I am still deducting mortgage payments. I could pay off my mortgage tomorrow (it's Sunday here, so I'd have to wait for my bank to open) but my accountant tells me that's a horrible idea.

In the USA, you would face capital gains taxes if your sales basis was greater than your cost basis.

Not since the 1980s.

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

#103

Post by Spooky23 »

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…

Conversely, good luck finding an affordable rental during an oil boom.

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

#104

Post by AstralStorm »

azernik wrote: post #45
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…

Yeah, I think a frame that people don't use often enough when talking about homeownership is as a hedge against rising housing prices. As a person who needs somewhere to live, you already have a short position in the market whether you like it or not.

Indeed. Though this only applies if you actually live in the house.

Rental is a way to hedge the short into long position for investors in homes and apartments. The renter instead is probably in long position on house prices add they likely want their own house - if they don't, they are subject to many market risks, including some existential ones.

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

#105

Post by AstralStorm »

asfasgasg wrote: post #57
jameshart wrote: post #46

Earlier quoted context omitted.

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. Yo…

How totally incorrect. Stocks are typically highly leveraged by big investors. Otherwise the gains are highly limited.

Large bigcorps ate also vulnerable to market downturns and can fail. This has been shown in the recent lending crisis and car manufacturer problems.

Stock require maintenance as in you have to watch the prices and the general condition of the market at the very least or you stand to lose a lot of money.

Stocks are not even immune to power outages. (E.g. one at certain flash manufacturing plant of Samsung) Media are less predictable than weather and affect stock prices a lot. Main factor in prices of mortgages is supply of houses and interest rates which are relatively predictable.

Stocks are taxed at capital gains tax level when you sell them like everything else.

Whole you can technically sell stocks to anyone, not anyone will want to buy your stocks anyway or will buy it for a massive discount.

The remaining point about not moving is moot when you have a family. Want to move yearly with a kid or two in tow? Good luck! And then you also presume there are always better opportunities to move to. This might be true in a score of professions but not most of them.

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

#106

Post by AstralStorm »

shanghaiaway wrote: post #86
paxys wrote: post #48

The author makes a few good points, but IMO most others are negated by the two he conveniently skips: 1. Your house is usually generating income (for a rental property) or offsetting the rent you would otherwise have to pay. Saying "you have to pay a lot of taxes" doesn't mean much unless you compare the numbers. 2. He mentions that property value is tied to a specific geographical area (and that's a bad thing), but…

You're assuming that housing prices always increase. If they decrease, the property is not generating income but losses even if you rent it out.

That is equivalent to any investment. The difference is that the property still generates income if not capital total gain. A depreciated stock generates no dividend.

Moreover there is a floor on a value of a home unless you let it completely unmaintained or it gets bombed in a war. There is no floor on stocks. There is such a floor on some material futures. (Though probably lower.)

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

#107

Post by AstralStorm »

raspasov wrote: post #65

The article is basically correct. Let's explore the options. BUYING REAL ESTATE ------------------ Take the average price of a home in the USA, according to a google's top result, approximately 200,000. Take the average APR at the moment, 4.5%. That results in a $800 payment per month for 30 years if you put 20% downpayment of 40,000. (source https://www.dollartimes.com/loans/mortgage-rate.php?length=3... ) Depending…

I'd like to see a stock that reliably compounds in the way described. It'd be a killer. What I see is at best stable few percent smoothed compounding. Not 100%. Please consider historical variance at the very least which vastly outstrips APR. Losses get compounded to and there are major opportunity costs when you actually need cash for any of various reasons.

I have seen people get totally wiped out in a market crash. Some of them managed to keep property they owned.

History is not on anybody's side. Companies can fall too. Houses can be incorporated or stolen or get dilapidated.

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

#108

Post by dman »

sulam wrote: post #100
DrScump wrote: post #75

Earlier quoted context omitted.

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…

I like to think of this as the Government encouraging you to pay more in recurring taxes by waiving a one time tax - you did end up increasing your exposure to the real estate market and your annual property taxes through this transaction.

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

#109

Post by davvolun »

ajross wrote: post #12

This is awful analysis. Almost every one of the bullet points is just wrong, or at least terribly spun. I mean, one of them argues that homes are "heavily taxed" when of course they are the source of the biggest single deduction category in the whole budget, another claims with a straight face that the ability to leverage the investment via a (again, government subsidized!) loan is a bad thing! Now, obviously not all…

Biggest single deduction category relating to federal taxes, yes. But state-to-state varies pretty widely, looks like from 0.27% to 2.40% [1]. Notably, no one in their right mind would invest in, say, a hedge fund that charged 2.40% fees, right? Meanwhile, to get 0.27% "fee" in Hawaii, you're looking at an average minimum investment of half a million dollars. Not great.

[1] https://wallethub.com/edu/states-with-the-highest-and-lowest...

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

#110

Post by raspasov »

AstralStorm wrote: post #107
raspasov wrote: post #65

The article is basically correct. Let's explore the options. BUYING REAL ESTATE ------------------ Take the average price of a home in the USA, according to a google's top result, approximately 200,000. Take the average APR at the moment, 4.5%. That results in a $800 payment per month for 30 years if you put 20% downpayment of 40,000. (source https://www.dollartimes.com/loans/mortgage-rate.php?length=3... ) Depending…

I'd like to see a stock that reliably compounds in the way described. It'd be a killer. What I see is at best stable few percent smoothed compounding. Not 100%. Please consider historical variance at the very least which vastly outstrips APR. Losses get compounded to and there are major opportunity costs when you actually need cash for any of various reasons. I have seen people get totally wiped out in a market crash…

You don't buy a single stock, you buy a basket of stocks which reduces the risk of some companies failing or losing value. Absolute minimum 5, preferably 10+ or an ETF which effectively combines dozens or hundreds of companies under one ticker.

It's easy to find one stock with way better returns than what I described over the long run, say 20+ years (example AAPL). It's also easy to find a stock that's way worse over 20 years (example HPQ). You have to keep up with that, sell the companies which are not good anymore, buy new ones, etc.

That's why an ETF is an "easy way out" for a small fee (usually 0.1% of the money invested or lower).

You can check the historical returns here and do the numbers for this ETF https://personal.vanguard.com/us/funds/snapshot?FundId=0970&... . You'll find it's very close to what I am describing.

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