Why Your First House Is A Liability • Hacker News Board

Re: Why Your First House Is A Liability

#21

Post by kijin » Sat, Sep 05, 2020, 2:48 PM UTC

geerlingguy wrote: post #3

> I don’t want to reinvent the wheel, we’ll use the definition from one of the best personal finance book “Rich Dad Poor Dad” I was trying to understand the perspective of the article, and that gave me the major clue. RDPD is one of many books that basically says the key to financial success is real estate investment. For a few people, and at certain times, maybe, but it is better for most people to make it a (small)…

> it is better for most people to make it a (small) part of a wider financial investment plan.

Theoretically, you are right.

Realistically, most people don't have enough left to invest a substantial amount of money in another market once their primary residence has been taken care of. Last time I checked, over 60% of the net worth of the average American homeowner consisted of their home, with their 401k's taking up a significant share of the remainder. I guess that's one reason why RDPD was so popular: it told people that they could become a "rich dad" by just continuing to do what they -- and everyone else -- were doing.

Re: Why Your First House Is A Liability

#22

Post by jlj » Sat, Sep 05, 2020, 2:49 PM UTC

dawg- wrote: post #13

I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommen…

> A mortgage payment is always less than rent for an equivalent property, anyway.

Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy.

And you also have to consider what you equity would be doing if it was invested in something other than your house.

Re: Why Your First House Is A Liability

#23

Post by pseudoramble » Sat, Sep 05, 2020, 2:50 PM UTC

geerlingguy wrote: post #3

> I don’t want to reinvent the wheel, we’ll use the definition from one of the best personal finance book “Rich Dad Poor Dad” I was trying to understand the perspective of the article, and that gave me the major clue. RDPD is one of many books that basically says the key to financial success is real estate investment. For a few people, and at certain times, maybe, but it is better for most people to make it a (small)…

I agree with your point. In addition, this book also suggests ideas that, in my opinion, are so far away from the minds of an average person that it's kind of absurd. Admittedly it's been years since I've read the book, but one example I can remember is setting up a corporation to reduce tax burden through. I don't think it's useful advice for somebody whose trying to get by and not already wealthy.

I would've appreciated the article more if they skipped mention of "Rich Dad, Poor Dad" entirely.

Re: Why Your First House Is A Liability

#24

Post by danielhua » Sat, Sep 05, 2020, 2:50 PM UTC

dawg- wrote: post #16

treyfitty wrote: post #11

Why is Medium filled with, what I call, celery? I consume articles, but there is absolutely no substance. Is there some unknown incentive for these people to share empty “enlightenment?” It’s as if these people are becoming content farms being graded on number of articles published. Anyway, this article is garbage.

Medium is very popular among people who are trying to be Thought Leaders but actually have no original thoughts to share

Ha. I'm stealing that joke, that's quality. I wonder if anybody's managed financial success on Medium/Substack yet with a "hustler inspiration" focused GPT masquerading as a guru. I'd love to read that postmortem.

Re: Why Your First House Is A Liability

#25

Post by kbos87 » Sat, Sep 05, 2020, 2:50 PM UTC

whiddershins wrote: post #20

kbos87 wrote: post #14

Oh god, I’ve thought long and hard about this over the years and my conclusion is that there’s no good advice that applies to everyone - whether you should own or rent depends heavily on what you value, how long you plan to stay put, and what alternatives you have when it comes to what to do with your money. Renting gives you flexibility and keeps any cash you might have free, but it also is a sunk cost with each pas…

This idea of appreciation being a bonus is the most important concept in real estate ownership. Make the math work without appreciation, and you are doing it right.

So, so true. But if you have conversations with a hundred people about the math behind their real estate, it’s the only thing the vast majority are considering in my experience, which is such a big miss.

Re: Why Your First House Is A Liability

#26

Post by tboughen » Sat, Sep 05, 2020, 2:51 PM UTC

Barrin92 wrote: post #9

mellosouls wrote: post #2

Seems to be written from the perspective of somebody who cannot see the difference between an investment and a home . Even if you look at it in mostly financial terms there are positives and negatives; the essay here is far too black and white. Sure, by chasing every dollar you can sacrifice quality of life for a few years to maximise your bank account at a later date, but in the meantime some of us prefer to live a…

you can turn that argument on its head though. Caring about quality of life is why I rent rather than buy a home. No debt, no fixed costs (people typically say 1% of the value of the house per year, quite a lot of cash), no repairs I have to worry about, moving out is simple etc.. Here in Germany most people rent by the way, so I never understood the obsession with homeownership. Just look at the covid mess. If you'r…

I don’t know what German tenancy laws are, but I suspect that they give the renter much more protections than Americans. This affects incentives.

Here in the U.K. I wanted to make sure we owned a house before having children because I wanted to mitigate the risk of being in a rental and given 2 months to to find a new home because the owner wanted to sell.

Re: Why Your First House Is A Liability

#27

Post by dawg- » Sat, Sep 05, 2020, 2:52 PM UTC

jlj wrote: post #22

dawg- wrote: post #13

I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommen…

> A mortgage payment is always less than rent for an equivalent property, anyway. Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy. And you also have to consider what you equity would be doing if it was invested in something other than your house.

It’s true, and maintenance costs can easily erase the difference in any case. I wouldn’t say owning is definitively better financially than renting, but i do think it is better in general.

Re: Why Your First House Is A Liability

#28

Post by maztaim » Sat, Sep 05, 2020, 2:52 PM UTC

I don't ever consider my primary house an investment. I purchased and put money into projects that allowed me to live in the house. Usually, housing markets are stable enough that at the very least you are either breaking even, making some moeny or at the worst losing a little money to when selling the house. Despite maybe losing some money, consider the overall amount you spent. If done right, you should have at least lived rent free.

There are downsides to owning. Bad stuff happens and you are on the hook for it. A furnace can cost a pretty penny. Water damage is messy, expensive and hard to repair. If you aren't handy, renovations are costly. Even if you are handy, renovations often cost more than planned and take WAY longer than you might want. I wound up doing a lot of punch list work as I was getting ready to sell my first house. I spent years living with my imperfect, incomplete work.

Consider this, though: renting is as bad as leasing a car. There is no financial benefit long-term. That money is gone and you will have no real leverage from that rental to put towards your next adventure. Not even the security deposit with interest will cover the overall cost of renting for a year, though you may get it back with a little interest. You will have spent a significant amount in rent over the time you lived there, more than that deposit + interest is worth.

You do have some benefits (maybe). You aren't responsible for renovations or equipment failure. Hopefully you have a landlord that is responsible and willing to quickly repair that furnace in the dead of winter. You aren't as tied to a location long-term. When the contract is up, you can leave immediately. You don't have money tied up in a house that may not sell at the same time you are looking to purchase.

Ultimately I was able to walk away with a chunck of change for my next house, if I calculated it out, I likely broke even or lost a little money over renovations and interest, but I didn't lose all those payments over 5 years to rent.

Re: Why Your First House Is A Liability

#29

Post by [deleted] » Sat, Sep 05, 2020, 2:53 PM UTC

jlj wrote: post #22

dawg- wrote: post #13

I bought my first house at 24 which is apparently rare nowadays. I sold it and made some money. If I had taken my down payment and invested it in a bunch of AMD stock or something I would have made triple the money. But I don’t regret it - there is something so satisfying about owning the place you live. It’s like a sense of self-efficacy and control over your life that is not the same when you rent. I would recommen…

> A mortgage payment is always less than rent for an equivalent property, anyway. Not always, though they often track closely to reach other, they can also diverge. If rent is high and home prices are low that could be a good signal to buy. And you also have to consider what you equity would be doing if it was invested in something other than your house.

[deleted]

Re: Why Your First House Is A Liability

#30

Post by thrwn_frthr_awy » Sat, Sep 05, 2020, 2:53 PM UTC

It unclear to me what investment of a 20% down payment the author thinks is going to have net returns greater than the leveraged real estate investment.

Also the statement “Especially, in big cities where down payments are huge, renting is always a better idea” is just straight up wrong and it’s uncomfortable to me that people write financial advice articles with such a clear lack understanding of markets, real estate, and motives of home buyers.