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The real cost of owning a home

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Re: The real cost of owning a home

#461

Post by ambicapter »

jandrewrogers wrote: post #316
jstanley wrote: post #298

Earlier quoted context omitted.

You're missing that most people are able to buy houses on borrowed money, so their housing investment is effectively levered up 10x or more, at least at the beginning. It's not a choice between $1m in housing appreciating at 3% and $1m in stocks appreciating at 9%. It's a choice between $1m in housing appreciating at 3% or $100k in stocks appreciating at 9%.

The problem with leveraged investments is that they can put you deep underwater. Many people in Seattle that bought $1M leveraged with $100k now own a $800k asset. They've lost twice as much as they invested. They would have been much better off investing that in stocks without leverage.

Yeah, but they still have a place to live. If the landlord is losing money on their asset, what's one place they could make up the difference?

Re: The real cost of owning a home

#462

Post by Avicebron »

zeroonetwothree wrote: post #189
Avicebron wrote: post #160

Not aure anyone else mentioned it but good luck keeping a big dog in a rental unit.. or any other animals for that matter. Gardens are a pain as well...

You can rent a single family house

it doesn't really fill the same need. Especially because you are at the mercy of the landlord.

Owning my own home is the only way to go.

Re: The real cost of owning a home

#463

Post by wwweston »

vardalab wrote: post #374
wwweston wrote: post #365

Earlier quoted context omitted.

Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion. It's probably worth making a closer comparison though: * Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments,…

You forgot to include the actual living costs if you invest. You're not gonna be able to contribute $2,500 a month. You would be able to contribute not that much , around here rents are $2,500 a month.

That point is in the analysis after the bullet points (in phrases like "minus 400k you would have probably paid in rent" and "you need to consistently have rent-payment-level disposable income to make this work. Many working people don't.").

I considered putting it up in the bullet points. Apparently deciding against that lost my expressions of this point to some readers, including yourself.

But yes, this is why the analysis after the bullet point mentions the profile of people who don't have $2500 disposable income. The leverage matters more to people in this situation.

Having seen this conversation play out more than a few times and even turn a tad fighty, I think this is the fault line:

* people who do this kind of analysis frequently and generally have high disposable income often see that they can leverage compound interest rather than pay it, so the Pure Financial Investment plan seems like a slam dunk to them, and for their profile they're probably right.

* people who generally don't have high disposable income see that they can use leverage to make their rent payment do double duty, which seems like a huge win for them, and for their profile they're probably right.

What I did leave out is how a mortgage can bound your living costs. Another commenter correctly pointed out rents can expand dramatically. Where incomes track rents, I don't think this makes a dramatic difference, and that's why I didn't include it, but it's true this isn't guaranteed, and mortgage can function pretty well as a hedge.

Re: The real cost of owning a home

#464

Post by barchar »

tootie wrote: post #387
wwweston wrote: post #365

Earlier quoted context omitted.

Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion. It's probably worth making a closer comparison though: * Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments,…

I always consult this calculator: https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal... It forces you to make some assumptions on market returns and such, but it gives a pretty clear picture. The biggest variable is how long you expect to live in the same place (longer favors buy) and the next biggest is the ratio of average rent to average housing payment. The inflection point being that if you live in one…

It's not true that paying off the mortgage makes it more advantageous to buy, home equity creates portfolio drag.

Re: The real cost of owning a home

#465

Post by mahirsaid »

interesting enough to read this. One thing that is not talked about is why would homes just keep going up, i understand the math behind it and what appreciation does to a home value. where is the cap that a visually home is 150k but market value over the three previous years has gone up 4% for example. This makes sense for high value areas, and upcoming areas. My confusion lies in the market value and negative equity. separate the mortgage "rate" and "market value, est home value" We can expect some gain is a guarantee, this could be 20% or 4% in 5-7 years of residing. The chilling wonder of rates exceeding 4%-6% is temporary as we saw previously in the 80's and 90's. Someone can argue that indeed this is a natural cycle of mortgage financing, however my conclusion is to draw attention of the the span of time that mortgage rate have stayed high and the implications of inevitably adjusting to lower rates by the feds. The president has persisted to lower the rates regardless of the Chair's decisions. Lower rates cannot be done alone. The market also needs adjusting at the same time. Sure by adjusting the rates will have an immediate effects on the market as well, but not large enough.

Those that have updated and added additional features to their home did so with materials and services bought during high pricing. It is true that a deck built a year ago is going to be 20% less for example. later when selling a home how will this reflect on the bigger picture for the total price. Let alone the market when the cooling takes affect you will owe more than what the home is worth lets say. So my confusion is brought by a conversation with a coworker. Stated that he wanted to buy a home at 21 years old i said that unless you have a family and know that you will be stable in that location for arpox 5-7 years that sure, however when the market cools and your locked in mortgage rate is XX% how will you sell you home and come out even or even +.

Response: equity

me: you mean negative equity!

response: homes are only going up.

me: to what a million dollar for a two bedroom, one bath dwelling located in a busy street and minimal parking and adjacent to neighboring property.

He seemed convinced, he seemed to convince me that i was wrong.

Re: The real cost of owning a home

#466

Post by notnaut »

pc86 wrote: post #390
wwweston wrote: post #365

Earlier quoted context omitted.

Love that the two most solid pro-homebuying points I've ever encountered (jedberg's about the psychological benefits, yours about leverage) immediately surface in an HN discussion. It's probably worth making a closer comparison though: * Buying a House on Loan: commit to paying off a $450k loan over 30 years at 5% interest, with an immediate $50k down payment and the home itself as collateral. So ~$2500/mo payments,…

The house gives you a place to live, so the PFI plan is either a huge miscalculation (not a great place to start when you're making a numerical argument) or intentionally disingenuous. Interest rates are closer to 6.7% which means your $2500/mo doesn't even cover your principal and interest of $2600 which is to say nothing of PMI (which will be required since you didn't put 20% down), homeowner's insurance, HOA fees,…

I understand it’s more complicated than this, but it seems really really confusing at a basic level.

In one situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you’re out on the street.

In the other situation you are paying someone else for a place to live, and when you stop doing that after 30 years, you have a house.

Re: The real cost of owning a home

#467

Post by m463 »

dividefuel wrote: post #315

Beyond financial costs, I was caught off guard at how much time home ownership took up. House maintenance and projects have taken up most of every single weekend of mine for the past few years. Part of it is simply that I bought a house with more space than the places I usually rented. More to clean, more to maintain, more things that can go wrong, etc. But the biggest thing is that I'm the only one in charge of main…

I don't think home ownership is an "every single weekend" thing unless you bought a fixer-upper.

Honestly, it sounds like you enjoy it.

If you are doing it with that frequency I think you just are "into" your house.

Re: The real cost of owning a home

#468

Post by ocdtrekkie »

fragmede wrote: post #427
ocdtrekkie wrote: post #342

Earlier quoted context omitted.

Passing it down to your kids is huge. Unfortunately what I've learned is most people are incredibly selfish and do not actually care what happens to their family when they pass. Renting and owning may not be all that financially different to you with a mortgage of 30+ years, but it will definitely be financially different to your heirs.

Yes it will - you can split stocks/financial portfolio way easier than you can real estate. If your heirs don't get along, leaving them to split the house, especially if they're not well off, is a recipe for giving money to lawyers. Forcing your kids to sell their childhood home in a time of grief just seems cruel. Passing down a financial portfolio with specific shares/dollar amounts is much more straightforwards.

Again the difference is though that if you are renting that money is not going into your net worth. The principal from your mortgage is. Concern about difficulty with handling it is resolved by having a good will that makes preferences on how it should be handled clear.

Re: The real cost of owning a home

#469

Post by quantified »

lnsru wrote: post #343
em-bee wrote: post #96

Earlier quoted context omitted.

that's the nice thing about renting in germany. there this would not work, the owner can sell the house but they can't kick out the tenant. so whoever is buying is taking over the tenant. and while you can ask a tenant to move out if you need the house for yourself, that too has to consider the needs of the tenant. if they have kids in school it is almost impossible to remove them unless you go out of your way to hel…

That’s a very nice theory. Decent real estate first buyer will not even consider rented property. But there are enough unscrupulous shady people who will buy the property at a great discount and get the tenants out. You will be right according the law, but still mistreated. Will you enjoy abuse waiting 3 years for a court? Probably not. It’s not their first rodeo.

When you inherit property, it comes however it comes. I've been displaced twice by heirs. A lot of rental houses in the Bay Area are second/empty nests.

Re: The real cost of owning a home

#470

Post by asdff »

dividefuel wrote: post #315

Beyond financial costs, I was caught off guard at how much time home ownership took up. House maintenance and projects have taken up most of every single weekend of mine for the past few years. Part of it is simply that I bought a house with more space than the places I usually rented. More to clean, more to maintain, more things that can go wrong, etc. But the biggest thing is that I'm the only one in charge of main…

>But the biggest thing is that I'm the only one in charge of maintenance. There's no one person I can call for every single problem. Keeping track of regular maintenance, performing that maintenance, and learning how to DIY things takes a lot of time. And even if I want to pay someone to do it for me, I still have to research contractors, coordinate estimates, and schedule the project. And I still need to learn enough about the project to determine whether they're doing it right!

The thing is, you can actually find these people. My landlord has one. Sage old handiman who knows everything about how the building works and fixed half of it himself already. Seemingly he can do every trade. He's under the building doing plumbing or electric one day. Landscaping the next. Installing appliances. Paint and drywall. Roofing. Most of the time it's him by himself, but he will occasionally bring out his crew of similar sage old handimen who know seemingly everything there is to know.

You don't need a contractor. They will give you the runaround. You need to find a handiman like this. Not easy I'm sure, but they are out there.

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