UnThreaded | Threaded | Whole Thread (97) | Ignore Thread Prev Thread | Next Thread
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Home Ownership not a good investment Date: 4/22/2014 4:05 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
http://www.washingtonpost.com/opinions/catherine-rampell-ame...

At least here in the United States, where only a minority of Americans prefers having a landlord and superintendent legally obligated to maintain their buildings and bear the risk if, say, Hurricane Sandy floods the basement. Americans romanticize the idea of owning their own roof, walls and fireplace, and they think they’ll make money off ’em, too.

The problem is that, perhaps because of tax incentives and ignorance about the financial returns from real estate investments, Americans are buying more house than they need or, in some cases, derive pleasure from. That incurs maintenance costs for the homeowner, not to mention other kinds of negative externalities for the rest of society (sprawl, traffic and greater carbon emissions) that likely outweigh the individual “psychic benefits” of buying oversize houses. If nothing else, the recent financial crisis should have taught us that it’s not in the country’s best interest to enable every aspiring homeowner to buy.

</sip>


Personally, I've always treated real estate as an expense to be minimized rather than an investment.

Stocks for the Long Run.

intercst
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74762 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 4:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
I don't like sharing walls in an apartment.

PSU

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74763 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 4:54 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 22
Since we're on the retirement board, I'll point out that some people find a sense of security in owning their home outright - with no mortgage. After 30 years (give or take a bit) of making mortgage payments, the ongoing costs of taxes, insurance, and maintenance don't seem as daunting.

In effect owning a home is prepaying for a lifetime of housing costs. If you live long enough that could be a wise financial choice. Not always, of course, but I suspect it is true often enough to be something to consider in a strict number-crunching way, apart from the psychological benefits.

--Peter

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74764 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 5:31 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
The fact that Americans still financially fetishize homeownership baffles me. Never mind that so many people lost their shirts (among other possessions) in the recent housing bust.

...

Yet Americans still think it’s financially savvy to dump all their savings into a single, large, highly illiquid asset.

...

Americans are buying more house than they need or, in some cases, derive pleasure from. That incurs maintenance costs for the homeowner,...


OK, so don't forget to diversify your investments, and remember to buy what you need vs what you want but can't afford. If you keep these things in mind, how is "home ownership (automatically) not a good investment?" People lost their shirts because they treated real estate purchases like the internet company investments that had no numbers logically dictating their purchase. You can't invest in any asset class without proper due diligence and smart numbers tilting the risk in your direction. Unfortunately many did and they dragged down with them those who spent their real estate dollars more wisely. That does not mean that wise real estate investments can't be made, particularly over time.

IP

Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74765 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 5:32 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
ptheland writes,

In effect owning a home is prepaying for a lifetime of housing costs. If you live long enough that could be a wise financial choice. Not always, of course, but I suspect it is true often enough to be something to consider in a strict number-crunching way, apart from the psychological benefits.

</snip>


I agree, if the numbers make sense.

I actually bought a condo a couple of years ago when the real estate bust allowed me to buy one for 6 times its annual rent. That was the kind of deal I needed to accept the burdens and hassles of owning a home.

intercst

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74766 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 6:26 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Housing is not an investment. It's an expense. If you make money on your home, you are lucky. You can call it brains but it's luck.

A mortgage payment for some people is forced savings. Most Americans have to be forced to save.

The real scandal is mortgage qualification.

Lenders/mortgage brokers loan the amount you can painfully pay back.

The guidelines almost assure you will not be able to fund retirement and pay the mortgage.

As far homeownership hassles go, our son and DIL have had to move twice in three years because landlords decided to sell or remodel.

Renting can be a hassle, too.

buzman

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74767 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 6:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
>>>That does not mean that wise real estate investments can't be made, particularly over time.

IP <<<

There is a big difference between real estate investments and home ownership.

Calling a home an asset class is a stretch, too.

If you need 10K, you can't sell the garage or cut off the front porch.

b

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74768 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 6:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Housing is not an investment. It's an expense.

Sure, if you rent. But like any other investment, when you own a home it can either appreciate in value or decline, just like stocks. In the case of real estate there is at least a fixed benefit of alternative value as housing. Try finding some benefit to a stock when it tanks.

If you make money on your home, you are lucky.

I don't sneer at "luck," but I've always defined luck as having the smarts to recognize an opportunity and the chutzpa to take advantage of it. We have lived in some places where we decided not to buy...the numbers dictated the risk was too high, but even when I "lost" money on the sale of a property, if I factored in the rent I would have otherwise paid, I was far ahead. Or I rented the property out until the market rebounded to the point where we made money.

The mistake is in letting a house own you...owning more house than you can comfortably afford. This restricts your ability to wait for a better market to sell. I've done the same with stocks...held on to them until a rebound happens. Just make sure your options are open.

IP

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74769 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 6:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
If you need 10K, you can't sell the garage or cut off the front porch.

If I were stretched so thin that I would have to carve off a piece of my real estate for $10K, I would have no business owning that real estate.

IP,
recently getting a free low interest $100K line of credit on my home so that I don't have to create cash flow by cashing in any stocks I don't want to

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74770 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 7:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
We own our home...have for years.
It was my/our prioity to pay it off and it was fun, an adventure.
I just love paying off things, spreadsheets and what-if.

A mortgage payment for some people is forced savings. Most Americans have to be forced to save.

Yes, perhaps it is forced savings, but does it anyone wrong? In my opinion, not in the long term.

It's a good thing.
And by paying a mortgage down you get rid of your mortgage quicker - bam - and on auto-pilot- you get it at a lower interest cost. Really! Pay it off earlier.

Putting more on principal, to reduce the mortgage, adding onto your mortgage payments is a no-brainer.

Even 10 bucks extra, now you own that door knob.


nag
Who thinks this is most relevant for most mortgages...not all

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74771 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 7:41 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Putting more on principal, to reduce the mortgage, adding onto your mortgage payments is a no-brainer.

I would say take a minute and think about where you are putting that money. I'm not adding anything to pay a mortgage with a rate in the 3s.

It may not be relevant for any mortgage, IMHO. Better to save/invest and be able to pay off the mortgage than sink it into a house bit by bit.

Print the post Back To Top
Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74772 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 10:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
It's a good thing.
And by paying a mortgage down you get rid of your mortgage quicker - bam - and on auto-pilot- you get it at a lower interest cost. Really! Pay it off earlier.

Putting more on principal, to reduce the mortgage, adding onto your mortgage payments is a no-brainer.


I was making 30% on my investments last year while paying 2.625% on my mortgage. I'm not too motivated to pay extra to the mortgage.

PSU

Print the post Back To Top
Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74773 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/22/2014 11:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I don't like sharing walls in an apartment.

PSU


-----------------

Agree.

Living downstairs from an upstairs apartment that has hardwood floors is a special hell too..

Print the post Back To Top
Author: BlueGrits Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74775 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 3:32 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
My story....

The first home I bought (~1983) would, today, probably sell for about 50% more than I paid. My second home (sold in 1998) has about doubled in value courtesy of some remodeling and landscaping. My current home has risen about 33% in since 1998 (partially as a result of some remodeling we've done). A lot of the changes weren't driven by my selection of home but by economic conditions beyond my control. So, for me, it's all been about luck.

A couple of years ago, DW looked at the future and decided we would most probably be leaving the area when reaching age 66. I found an interesting mortgage which would be interest-only and fixed for ten years, then adjust upwards with a ceiling of 2% increase for P&I over the next twenty. I got the mortgage and bought down points to give us a two and seven-eighths rate (we had about 50% equity). Money saved (former mortgage minus the $340/mo we now pay) goes into our retirement savings.

If we leave the area as projected, everything would be fine. We'll have had eight years of very low interest and increased retirement savings.

If for some reason we decided to stay, we might well sell the house and move to something smaller, less expensive, and easier to maintain. If we stay, we'll look at rates and either refi or pay the house off with the extra savings we made in the years prior to retirement.

While I don't look at our house as an investment per se, I do recognize its value (much like I do my car). Having it allows me certain options and a lifestyle more desirable than, say, living in an apartment.

As an aside....

When I work with our financial planner, I have them run three different scenarios and wonder if others here do the same. Here they are:

1) We both get our current Social Security benefit (totaling $4300/mo).
2) Means testing cuts our SS benefit in half.
3) No SS.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74776 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 10:00 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Renting doesn't necessarily mean an apartment.

This month two clients (early 70s) decided renting was a better option.

They could reduce expenses and invest/spend their home equity.

Plus they have flexibility absent with their former homes.


As an aside...

I don't understand ignoring SS benefits. Dialing back I get but not 50% unless you were planning for a surviving spouse.

Worst case scenario benefits are cut 25% in 18-20 years.

b

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74777 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 10:42 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Dialing back I get but not 50% unless you were planning for a surviving spouse.

For someone married, isn't this a scenario to be considered ?

Print the post Back To Top
Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74778 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 10:52 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Personally, I've always treated real estate as an expense to be minimized rather than an investment.

Personally, I bought a condo in downtown Boston in 1980 for $65,000. It's now worth over $700,000, and it's in rental, for which I get a check every month of $2,950 (of which around $1,800 is profit.) Better than that, the price of real estate/condos there is still going up about $5-8% a year, so it's been one of my best investments over the past 30 years, perhaps my best once you include the tax breaks and benefits.

Once we paid off our mortgage we found our net worth increasing much faster than before. Of course that was before the days of 3% home loans, but even at 6% it was worth it not to have to send out a check every month.
 


Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74779 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 11:08 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
Lenders/mortgage brokers loan the amount you can painfully pay back.

The guidelines almost assure you will not be able to fund retirement and pay the mortgage.


Why is it the fault of the lender if the buyer decides to buy more home than they can realistically afford?

The lender has no fiduciary responsibility to ensure that you are saving 10% in your retirement account in addition to being able to make the monthly payment.

My mortgage costs me less than 10% of my annual income. I have no desire to spend more on such even though I could certainly qualify for more.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74780 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 11:09 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I don't understand ignoring SS benefits.

I do, as a worst case scenario analysis. I do the same thing when crunching the numbers for a real estate investment, looking at affordability should something happen to rents. The future of politics is unknowable, so we have looked at eliminating that which we can not control, including pensions and SS, from our bare bones retirement equation. While I don't expect everything to implode, it is nice to know that we won't have to move in with the kids if it does.

As for buying vs renting, we decided to do a bit of both. We paid cash for a pre-foreclosure that had fantastic potential, getting a great deal on a property that was considered a "garage apartment" and unsuitable for a mortgage as such. Yes, the 1br/1ba 560SF upstairs was darned small, but the owner/builder had built it with expansion in mind when he could afford to do so, even putting a 3br septic in and a half bath in the lower 720SF garage/workshop. Lower level is in the process of becoming an additional 2 bedrooms, the half bath getting a shower, making the house a 3br/2ba with 300' frontage on the most fabulous crystal clear "creek" that has wonderful fishing, tubing and miles of kayaking both upstream and down. This will be our low expense home in retirement for 8-9 months out of the year, but we want to be in warmer climate for the winter.

We looked at buying a second home to use as a vacation rental for those 8-9 months we would not be there, but it soon became clear that if we instead took the cash needed for down payment and furnishing and kept it invested, the annual returns should be enough to fund 3 months of rental, and since it is discretionary spending, in bad years we stay at home sitting at the warm kitchen window, looking out at the mountains and river. No worries, no utilities, and the ability to explore extensively year after year. As much as I love real estate, this was a very exciting option for us to consider, also giving us the opportunity to find where we want to spend the second part of our retirement when rural living is not the best option. I figure 20 years of exploring should be a good amount of time to find a good place. After all it only took me 11 years to find our river house at a great value. I can be patient, particularly when the process is so fun.

As I touch up our primary residence for sale when we retire next year, I have to admit that I am looking forward to having only one house to maintain. It is amazing what can go wrong on these homes, even when well maintained.

IP

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74781 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 11:18 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Personally, I bought a condo in downtown Boston ...

There is a reason why "Location, location, location" is so critical. Boston is physically constrained wrt real estate development, making existing properties a high demand low supply investment. But Boston too has it's ups and downs. My brother bought a fixer-upper walk to T in Cambridge that required about a decade of rising property values before he would break even between initial and improvement investments. Another decade saw his property values triple when he sold for a tidy profit. In the recent housing crisis people lost sight of the need for seasoning of the property over time. It's not a good sign when there are multiple shows on TV about flipping a home, and every gathering you go to has people discussing the big money to be made in real estate.

Supply constraint/high demand is one criteria I look for in buying a property. If it is not there, I would rather rent.

IP

Print the post Back To Top
Author: BlueGrits Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74782 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 11:56 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
buzman: I don't understand ignoring SS benefits. Dialing back I get but not 50% unless you were planning for a surviving spouse.

As I said, the 50% cut scenario is my hedge against "means testing" which I think may well come to pass (and possibly affect us if it involves net worth). But, as you mention, it also addresses our surviving spouse scenario.

The third option (ignoring SS entirely) is more of what might be called an "absolute measure" of how well we've planned for our own retirement regardless of other factors.

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74783 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 11:59 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I don't understand ignoring SS benefits.

I do, as a worst case scenario analysis.

----------------------------------------

With SS the worst case is a 25% haircut not 100%.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74784 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 12:14 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
With SS the worst case is a 25% haircut not 100%.

Do you have a foundation for this other than your gut? It will be a good 15 years before we start drawing on SS, so my gut tells me anything can happen. But with retiring next year I can't wait until 15 years from now to be sure we've prepared properly for retirement. SS will be a plus, happily spent for extras but not counted on for necessities.

IP

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74785 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 12:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
which I think may well come to pass (and possibly affect us if it involves net worth).

One thing you can count on is that it WILL NOT factor in net worth.

Other sources of income, very possible but we won't see people be penalized for their worth.

Print the post Back To Top
Author: BlueGrits Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74786 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 1:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Hawkin, I don't see it that.

Perhaps I'm wrong, but better to plan for worst case and hope for the best than otherwise.

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74787 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 1:55 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I'm not the one relying on their gut. It's based on real numbers.

Here's an analysis of the SS trustees report.

http://www.cbpp.org/cms/?fa=view&id=3977

?"After 2033, Social Security could pay three-fourths of scheduled benefits using its tax income if policymakers took no steps to shore up the program. Those who fear that Social Security won’t be around at all when today’s young workers retire and that young workers will receive no benefits misunderstand the trustees’ projections.)

Here is the report.

http://www.ssa.gov/oact/tr/2013/tr2013.pdf

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74788 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 1:59 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
As I said, the 50% cut scenario is my hedge against "means testing" which I think may well come to pass (and possibly affect us if it involves net worth).

-------------------------------------------------------------------

SS is already means tested. It cracks me up when people act like it is a big deal.

It is designed to replace more income for workers with a lower lifetime earnings history.

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74789 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
After 2033, Social Security could pay three-fourths of scheduled benefits using its tax income if policymakers took no steps to shore up the program.

Right. But how is that 25% shortfall going to be distributed among individual Social Security recipients?

Certainly a 25% cut to everyone is one possibility. That seems to be what you are assuming.

But there could also be means testing that leaves some with their full benefits and some with a cut much larger than 25%. I think that means test could include both income AND asset components. (Although I'd guess any asset test would have an exclusion for a primary residence.)

For planning purposes, I'd tailor the worst case scenario to the specific individual. For someone with little retirement assets or income other than Social Security, the worst case would be a 25% across the board cut in benefits. For someone with significant other assets and/or income, the worst case might be the 50% to 100% cuts some have mentioned.

--Peter

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74790 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:16 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Hawkin, I don't see it that.

Perhaps I'm wrong, but better to plan for worst case and hope for the best than otherwise.


Net worth, unlike income, is way too fluid for it to be measured for such a purpose. There are very very few things by which net worth impact federal benefits.

For example, ACA - which logically should take into account net worth, simply looks at income only. You could have millions in stock but as long as your income from the dividends on such is low enough, you can get a subsidy to pay for insurance.

SS, unlike an ACA subsidy, is a return of your own money so it is even less likely that net worth would be factored into any future benefits.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74791 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:31 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Net worth, unlike income, is way too fluid for it to be measured for such a purpose.

As those of us with kids in college within recent history know, assets are factored by FAFSA in determining how much you should be kicking in before financial aid can come into play. I doubt it would be all that tough for most types of liquid assets to be factored in for SS means test.

As I said, I don't expect anything to implode completely, but since we are looking at giving up 15 years of high income to retire in our 50's, we had better be sure we can handle just about any scenario that has even the modicum of probability down the road. As much as politicians have talked about means testing SS, above and beyond the way in which it is already taxed and handed back to the gov't, it is not improbable that it will happen to some degree in our lifetime.

IP

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74792 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Additionally, if SS were means tested in such a manner, it would basically become welfare or another form of medicaid - the result of which would be a significant disenfranchisement of people that have already paid into the system, making it is EXTREMELY likely that politically, a "well-heeled" majority or significant minority will do all in their power to end the system.

The only thing go for it now is the fact that even if you are a CEO currently, you can at least count on getting some of your money back. If that were to change, expect it to face unprecedented political opposition.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74793 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Additionally, if SS were means tested in such a manner, it would basically become welfare or another form of medicaid - the result of which would be a significant disenfranchisement of people that have already paid into the system, making it is EXTREMELY likely that politically, a "well-heeled" majority or significant minority will do all in their power to end the system.

The ants will always be much in the minority, with the grasshoppers wanting to feast on our savings. If there is anything behind the concern that baby boomers are for the most part sorely lacking in retirement funds, that is a huge flag blowing towards the camp wanting to means test SS so the grasshoppers continue to get their full SS.

People who need the money will be most unlikely to say no to that.

IP

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74794 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 2:59 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
As those of us with kids in college within recent history know, assets are factored by FAFSA in determining how much you should be kicking in before financial aid can come into play. I doubt it would be all that tough for most types of liquid assets to be factored in for SS means test.

Free aid for education is in no way related to a retirement benefit for which you contributed your own money over 40+ years.

As much as politicians have talked about means testing SS, above and beyond the way in which it is already taxed and handed back to the gov't, it is not improbable that it will happen to some degree in our lifetime.

The most likely scenarios for SS (in no particular order):

Removal of or a significant increase in the current tax cap coupled with a further means testing of the income scale in retirement.

An additional income tax for those of high income (similar to the additional medicare tax for those of high income under the most recent tax law change)

An increase in the taxation of SS payments based on other forms of income (munis, divs, and roth income).

A combination of the above would go a long way to filling in any gaps in SS without resulting any current or near future (50 and older) losing any benefits. Recall that the last time SS was changed in any significant way, those that were close at all to retirement were protected from the changes. It was phased in for everyone else.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: THEMATHISNEAR Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74795 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 3:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Why is it the fault of the lender if the buyer decides to buy more home than they can realistically afford?

Personal responsibility for one's choices is apparently lost on many, if not most, people. This explains how retirement investing can be a very simple concept yet underutilized by these same people.

As Buffett has said, "People who understand compound interest will earn it; people who don't will pay it."

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74796 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 3:26 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
An increase in the taxation of SS payments based on other forms of income (munis, divs, and roth income).

Including Roth "Income" into the equation is simply a method of means testing.

IP

Print the post Back To Top
Author: syke6 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74797 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 3:37 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 12
I just love paying off things, spreadsheets and what-if.

And by paying a mortgage down you get rid of your mortgage quicker - bam - and on auto-pilot- you get it at a lower interest cost. Really! Pay it off earlier.

Putting more on principal, to reduce the mortgage, adding onto your mortgage payments is a no-brainer.


Kind of a brainer.

Let's open up a spreadsheet and do some what-ifs. Let's say you have a $250,000 mortgage at 4.5% and pay an extra $100 per month. You wind up paying off the loan four years early. Nothing wrong with that.

Now, let's say you put $100/month in an nice index fund and get 7% per year for 26 years (realistic, yet conservative). At the end of that time, the fund has $85,000, and something like $43,000 left on the mortgage.

There are still two more steps to make this an apples to apples comparison. In the first scenario you are now free to invest your mortgage payment, and in the second scenario you still have to make your mortgage payment. So you have to take into account those four years of payments to come up with the final comparison.

But to make it easy, let's just say in scenario B, you simply pay off the note, leaving you with no mortgage and roughly $40,000 in the bank, verses scenario A, where you simply have no mortgage.

One of those things is a lot better than the other.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74798 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 3:37 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Then I guess we should plan for all Roth distributions to be taxable, knock yourself out.

The idea SS would be eliminated via means testing is a hackneyed talking point.

I see the rationale for dialing benefits back but there are much easier ways to solve SS funding issues than 100% elimination of earned benefits.

Wish I could put more than one star on Hawkin's post.

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74799 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 4:11 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Including Roth "Income" into the equation is simply a method of means testing.

Your point? It is not a taxation on net worth, which was my point. Don't take any income from your Roth, don't see your SS taxed at a higher rate.

Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74800 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 4:19 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
Hawkwin: "SS, unlike an ACA subsidy, is a return of your own money . . . ."

I disagree. It is not a return of one's own money! There is no speciic account into which one's SS taxes have been deposited (and then invested) and are being held for return at a later date. In addition, the court cases are pretting clear: Helvering v. Davis, 301 U.S. 619 (1937), in which "the Court had ruled that Social Security was not a contributory insurance program, saying, 'The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.' " http://www.cato.org/publications/commentary/is-there-right-s... & Flemming v. NestorR 363 U.S. 603 (1960) and Helvering v. Davis, 301 U.S. 619 (1937) in which the Court held no vested right to benefits.

Regards, JAFO

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74801 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 4:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I disagree. It is not a return of one's own money! There is no speciic account into which one's SS taxes have been deposited (and then invested) and are being held for return at a later date.

It is an implicit return of one's own money, not explicit.

'The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.'

Of course, but in practice, trying to take such away, even something as simple as a change in the method by which CPI is calculated, makes it effectively earmarked for those expecting benefits.

I believe we would sooner cut defense spending in half before we let SS fail or suffer at 25% haircut.

I don't need it to be constitutionally guaranteed in order to be very confident that it will largely be there for me 20 years from now. I know what will happen to any pol that tries to have it be otherwise.

Now, those 20 years younger than me... they are very likely out of luck. They don't vote enough and don't have enough political clout to protect themselves from those of us that are on the backend of our lifetime SS contributions or those that are already receiving such.

Much like ACA, the young will end up oversubsidizing the old. The one thing I left out of my possible solutions was an increase in the FICA tax which is also a good possibility. Of course, the closer you are to retirement, the less such an increase will cost you over your lifetime.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74802 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 4:58 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
If you read trustees report, SS will only be able to pay 75% of projected benefits in 19 years.

Going forward most of scaled back benefits could be paid from payroll taxes.

The idea it will crash a Ponzi scheme belies the facts.

Conservatives and their corporate lackies would like to privitize it and that's where the means testing mantra begins.

In 19 years I'll 77 if they slice my benefit whoop de doo, I'll be 77, it beats the alternative.

b

Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74803 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 5:55 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Hawkwin: "Of course, but in practice, trying to take such away, even something as simple as a change in the method by which CPI is calculated, makes it effectively earmarked for those expecting benefits.'

Ask Dan Rostenkowski.

"I believe we would sooner cut defense spending in half before we let SS fail or suffer at 25% haircut."

The voters, maybe? The superwealthy and the Republicans they elect, I doubt very much.

'Much like ACA, the young will end up oversubsidizing the old."

That is the whole point of SS! From inception until 1983, it was pay as you go, and clearly involved a subsidy from those with earned income (paying SS tax) to those collectiong SS. Since 1983, there has been surplus revenue, but no one has seriously claimed that the plan would be "actuarilly sound" like a real pension plan, so it is stil a subsidy.

Regards, JAFO

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74804 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 7:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I should clarify...given my 'own the doorknob' statement.

We paid for our house and it was a savings for us.
We were paying off at 12 3/4% and then refi'd to an 8.5% mortgage. Banks were paying 5%. (Remember those days?)

Perhaps my thinking is dated...

But perhaps not,
There are more folks failing on mortgages even with these low interest rates - 3-2.5%. Of course the banks pay .01% now.

Same concept - different times.

Yes, it's a 'great idea' to make more by investing but you have to do that always. And this is a high market, not a good time to put money in.

Folks buying a house have to fight the impulse to overspend due to a low mortgage rate payment.
It has to be in your blood.

I don't think you can lump it in and say a clear message, don't pay it off.
You'll make more money somewhere else...because it's not always apparent where things will go with rates or their picks.

These might be folks that...don't 'bank it'.
Just spend the difference instead of paying off that house and having something to show for their money.

Sorry, instead of steering them to the market, I think a nice house would be better. Nothing wrong with security, a door knob if you aren't familiar with investing or planning.
Or prepared for where the wind blows.

nag

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74805 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 7:56 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thought about it,
Actually banks are are .015 or less.

Seems like the math alomst is the same as many years ago.

Put it in a market that's high?

Or pay off a mortgage that's costing you more than the banks paying you interest?
nag

Print the post Back To Top
Author: joelxwil Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74806 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 7:58 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Well I paid $153,000 for my house in 1987. I put about $125,000 into renovations and improvements, which certainly increased the value of the house. It is now worth at least $550,000. Not bad as an investment, although I did better in the stock market. Besides I got a place to live. So, if you factor in the rent I did not pay, the thing looks pretty good.

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74807 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 8:09 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 16
Or pay off a mortgage that's costing you more than the banks paying you interest?

The point, though, is that by adding a little extra to your mortgage payment each month, you are not "paying off a mortgage." Until your mortgage is completely paid off, you will still owe that mortgage payment to the bank every single month until it is paid off completely. So if you hit a rough patch such as being unemployed, it will not matter one iota to the bank that you have been prepaying your principal every month. If you do not make your expected monthly mortgage payment, you are in default and at risk of foreclosure.

If, instead, you were to save up that money in a separate account or even invest it and you hit that period of unemployment, you can continue to pay your mortgage and are not in danger of defaulting and foreclosure. In addition, when you have finally saved enough, you can then pay off your mortgage if you feel that is your best move.

But pouring more money each month into an illiquid asset is actually riskier than putting that money aside as long as there is still a balance on the mortgage.

As someone who has dealt with long-term unemployment, I can tell you that not having to worry about having money to pay the mortgage was one less stressful item with which I had to deal, and that was because I had opted not to prepay and to set the money aside instead.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74808 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 8:16 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
There is a reason why "Location, location, location" is so critical. Boston is physically constrained wrt real estate development, making existing properties a high demand low supply investment. But Boston too has it's ups and downs. My brother bought a fixer-upper walk to T in Cambridge that required about a decade of rising property values before he would break even between initial and improvement investments.

I just looked at the other houses we have owned across the last 30 years. According to Zillow, every single one of them has recently sold for, or is comped at more than when we sold it. None have appreciated as well as Boston, but the others are suburban, not physically constrained in any sense.

What they are is "good properties" in "good neighborhoods", and especially with "good schools." Because Mrs. Goofy and I were in a volatile industry and knew we would be moving every 3-5 years, "good schools" was the most important factor, even though it meant higher taxes (and we have no kids to take advantage of the schools.) But we felt there would always be demand for better schools, so that's what we did.

The ants will always be much in the minority, with the grasshoppers wanting to feast on our savings.

Oh baloney. I know this is the Conservative view of the world, but it just ain't so. A little less than half of the population depends on Social Security for the majority of its income. More people actually do save and plan than do not. (This is not a big change from the 1920's, prior to Social Security; the difference is that then the people who did not plan lived in poverty or in the 3rd floor attic of the son or daughter.)

After 2033, Social Security could pay three-fourths of scheduled benefits using its tax income if policymakers took no steps to shore up the program.

Again, that's worst case. Maybe the number will be 95%. Maybe 87%. Maybe 100%. People have been predicting the collapse of the system since the day after it went into law in the 1930's. At the moment there are 2.8 workers for every recipient. Looking into the worst years of the baby-boom, the very very worst, there will be 2.1 workers for each recipient. That, of course, assumes that we continue our insane immigration laws, which keep that number lower. Allow more immigration - and more important - get those incomes on the books, and those numbers get back into even better balance.

Why is it the fault of the lender if the buyer decides to buy more home than they can realistically afford?

Let me rephrase. Should a business knowingly take advantage of a customer for short term profit, knowing that both the customer and the lender will be harmed in the process? Welcome to 2008 Florida and California. Who had regulations preventing this? Canada. Texas. So if you propose that the fast-buck artist should win, well, bully, but the rest of society took it in the shorts too for the benefit of a few.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74809 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 8:28 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
2gifts,
You prove a point. Yes, rough patches.
But in your case pouring into a high market would not be good either.

Hence. it's like the fool mantra

Put money aside.
For emergencies.
I would like to think we all do this.
Not sure if anyone just buying a home understands this.

So many posts on this subject
I hope the OP takes them in consideration in his situation.

Sorry, more posts than imagined.

nag
The heck with a door knob, we own the whole house!
And we just like it that way.

PPS Perhaps I should just go away, you let me know.

Print the post Back To Top
Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74810 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 8:50 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
While some emergencies are conceivable, some are not.

I'm with 2gifts but substitute terminal illness of spouse for unemployment.

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74811 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 8:54 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
So many posts on this subject
I hope the OP takes them in consideration in his situation.


I hope so as well. I think that this is all good discussion, and it shows that we all have different priorities and risk tolerance levels. I also think that it is good to hear the different viewpoints so that more opinions and info can be taken into consideration when trying to put financial plans together.

Perhaps I should just go away, you let me know.

Absolutely not. I hope you also learned a few things from the posts here, and that you have more food for thought. I also hope others have learned from your posts.

I find this particular board to be very useful, and the discussion to generally be on point. I'd like to see that continue, and I think you should continue to participate.

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74812 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 9:11 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Well Then,
Let's not all this turn into the PA board, right?

2gifts, reallyallDone,
I have read many things throughout the years, and yes, you were there.

nag

Bet I will be there in a few

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74813 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 9:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
And trust me, you were there. Many years ago...

I wish I could do something now.

nag

Print the post Back To Top
Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74814 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 9:55 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 11
In grad school (MS Finance) we did a comparison of twins: one a lifetime home owner and one a lifetime renter. Their lives were identical except their housing. Their agreement was to compare their total costs of housing at the end of each month and the one who paid less would invest the difference in an S&P 500 index fund. At retirement the homeowner will sell and add his net to his savings. The results are not even close....the renter had accumulated almost twice the savings due mostly to large cash payments for down payments and closing costs by the home owning twin in the early years.

IMHO home ownership should be about life style and affordability...not about investing.

BruceM

Print the post Back To Top
Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74815 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/23/2014 10:41 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
IMHO home ownership should be about life style and affordability...not about investing.

I think that applies to a lot of decisions in life. I know I've been much happier owning a house where I could fix things up as I wanted than I ever was renting.

I could say the same thing about the golf cart I own and store at our club. With initial investment, depreciation, storage and maintenance the cost of owning vs. the club's leasing program makes owning financially dumb. But having my clubs, shoes, and other gear stored in a locked cart stall and ready to jump on and go is a whole lot nicer than hauling everything around in the back of my Jeep and having to load clubs on a cart every time I play. I'll pay the financial penalty of ownership for the convenience any day.

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74816 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 2:09 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
At retirement the homeowner will sell and add his net to his savings.

What was your assumption about the value of the house at sale?

Selling the house at retirement means that most of the time there would have been a mortgage payment for the homeowner. What happens if you continue the mental exercise for 10 or 20 years of retirement? The renter would need to draw from their savings to continue to pay for housing, while the homeowner would only need to draw smaller amounts for taxes, insurance and maintenance. At some point, those larger payments will catch up to the renting twin, I just don't know how long that would take.

--Peter

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74817 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 6:45 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
IMHO home ownership should be about life style and affordability...not about investing.

There are no purchases of the size of a home that I make without considering return in addition to other factors. We bought the house we did 10 years ago because of it's superior market positioning for resale value:
-excellent nationally ranked top 10% public schools
-taxes half of neighboring townships with similar schools (savings of about $7K/year)
-walkable neighborhood with access to miles of township hiking trails
-good sized lots without being isolated
-neither the cheapest nor most expensive home in neighborhood
-easy access to various commutes in several directions and short drive to public transportation to city
-solid home with modern vibe, large rooms with open floor plan
-low maintenance

Renting a similar middle class home would cost us about $1,500 more per month over our PITI. Some of this has been offset by repairs that came out of our pocket, rather than the landlord, but the costs of ownership have not been high, and it's almost impossible to rent a home here. It is going on the market next year when we downsize for retirement. Based on this year's market I expect to get roughly a sales price 25% higher than purchase after netting our sales costs. That is with having bought near the top of the housing bubble.

We had our choice of three states when we transferred, but went with the best school district for the tax money, even though it cost us an extra 25% at purchase. We had kids to consider, but it is clear to me that a good school district will hold it's value better in down years, accelerate in value faster in good. I would rather buy less house in a good district than more at the same price in a poor district, even without kids to use those schools.

IP

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: MetalDecathlete Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74827 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 10:53 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
As I said, I don't expect anything to implode completely, but since we are looking at giving up 15 years of high income to retire in our 50's, we had better be sure we can handle just about any scenario that has even the modicum of probability down the road. As much as politicians have talked about means testing SS, above and beyond the way in which it is already taxed and handed back to the gov't, it is not improbable that it will happen to some degree in our lifetime.

IP


Agreed! I'm in the same boat as IP. DW and I plan on giving up a high income some time later this year or the beginning of 2015 and retire in our early 50's. I've been planning this for about 20 years and am making dang sure I'll still be able to live well without getting SS. If we get it, it will be gravy that will probably help fund my grand children's college.

Metal

Print the post Back To Top
Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74830 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 12:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
As much as politicians have talked about means testing SS, above and beyond the way in which it is already taxed and handed back to the gov't, it is not improbable that it will happen to some degree in our lifetime.

IP

Agreed! I'm in the same boat as IP. DW and I plan on giving up a high income some time later this year or the beginning of 2015 and retire in our early 50's. I've been planning this for about 20 years and am making dang sure I'll still be able to live well without getting SS. If we get it, it will be gravy that will probably help fund my grand children's college.

Metal


Conservative claptrap. If Social Security goes then you better plan for no Medicare, too.

Factor in five figure insurance premiums and throw in six figure medical costs.

Cross your fingers they don't repeal the ACA.

B

Print the post Back To Top
Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74834 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 12:59 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Peter
I'm doing this from memory, as this study we did was in the early 80s. But we compared future net savings at retirement (ages 65) because that was a good end point due to retirement and lifestyle changes. As I recall, the renter had already passed the homeowner in monthly housing expenses at about age 55-60 or so.....i.e. the homeowning twin was making savings contributions. This occurs because the P&I on a fixed rate mortgage is constant while rent grows with inflation although most of the other expenses of ownership (property taxes, insurance, maintenance) also growth with inflation. There is a 'cross-over' point on the total monthly housing expenditures. But this is separate from the total amount saved. And I don't think we calculated when the future savings amounts would have theoretically been equal

An issue we had some debate about was whether the principal part of the P&I payment should be considered a monthly expense, as it really is a form of savings. I think we finally agreed that it was really a measure of available household cash flow and the principal payment was really a form of forced savings as part of the monthly housing expense that would be recaptured in later years...so it was kept categorized as a monthly expense.

This is all very theoretical and academic, as no two people would ever live this way....but it was a kind of fun exercise. But it did show the affect of the large costs of buying and selling...which sometimes gets overlooked when comparing just the monthly costs of buying vs renting.

BruceM

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74836 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 1:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
BruceCM: "This is all very theoretical and academic, as no two people would ever live this way....but it was a kind of fun exercise. But it did show the affect of the large costs of buying and selling...which sometimes gets overlooked when comparing just the monthly costs of buying vs renting."

Frictional costs can be real money.

A long ago poster, speaking to the same topic, generally advised aiming to buy the last house you would purchase as young as possible, in order to avoid the constant frictional costs.

And depending upon your spouse, any home purchaser will require $x k of work and other redecorating costs before it is suitable for her (or him) to be happy there.

Regards, JAFO

Print the post Back To Top
Author: MetalDecathlete Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74842 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 2:58 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
buzzman
Conservative claptrap. If Social Security goes then you better plan for no Medicare, too.

Factor in five figure insurance premiums and throw in six figure medical costs.

Cross your fingers they don't repeal the ACA.

B


It's called being prudent, not political. I don't expect SS to go at all. But I have plans, within plans, within plans to protect myself and my family.

That's what fiscal conservatives do.

Metal

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74843 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 3:03 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
It's called being prudent, not political. I don't expect SS to go at all. But I have plans, within plans, within plans to protect myself and my family.

That's what fiscal conservatives do.


Don't worry about it Decath, Buzzman is just buzzing too loudly to hear anyone but himself.

The kind of planning you and I do is why we can retire so young, even with several kids between us.

IP

Print the post Back To Top
Author: MetalDecathlete Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74845 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 3:18 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
IP
The kind of planning you and I do is why we can retire so young, even with several kids between us.


:)

It's an amazing thing is it not IP? I keep having to remind myself that's it's actually happening!

Metal

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74846 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 3:26 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
It's an amazing thing is it not IP? I keep having to remind myself that's it's actually happening!

I will probably believe it more when it gets here, but there's not much a few decades of planning and discipline can't accomplish.

IP

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74847 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 3:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
This is all very theoretical and academic, as no two people would ever live this way....but it was a kind of fun exercise. But it did show the affect of the large costs of buying and selling...which sometimes gets overlooked when comparing just the monthly costs of buying vs renting.

No offense meant, but that was probably what you chose to see. I think these exercises are best used to understand the sensitivity of the various estimates and projections. Offhand, I'd guess that you needed to estimate the future inflation in rents, the future inflation of housing prices (and taxes and insurance and maintenance), investment returns, mortgage interest rates, and probably a couple of other things.

I don't believe these artificial comparisons are very good for drawing conclusions. Instead they're great for figuring out the important variables and the unimportant variables. If the important variables are ones under your control, then your future is in your own hands. However if the important variables are ones you can't control, then you need to figure out how to make your decisions given the uncertainty presented by those variables.

--Peter

Print the post Back To Top
Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74854 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/24/2014 9:43 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
This occurs because the P&I on a fixed rate mortgage is constant while rent grows with inflation although most of the other expenses of ownership (property taxes, insurance, maintenance) also growth with inflation.

You don't think property taxes, insurance, maintenance are included in the rent I charge my tenants? Where do you get the idea that I'm somehow giving them a free ride on all of this? If anything, as those prices go up, the rent goes up more.

An issue we had some debate about was whether the principal part of the P&I payment should be considered a monthly expense, as it really is a form of savings. I think we finally agreed that it was really a measure of available household cash flow and the principal payment was really a form of forced savings as part of the monthly housing expense that would be recaptured in later years...so it was kept categorized as a monthly expense.

And I'm curious if the tax benefits were included in this calculation? Because the renter is paying those taxes, but the landlord is reaping the benefit. I get depreciation, which gives me a break on profit, but the renter never sees that. I get an income tax deduction, which the renter doesn't. If my cash flow is negative, I get a credit which I can use to shield other income, but the renter doesn't get that either.

Appreciation in the property? I realize that when I sell the house. All the tenant sees is that rents in the area are going up, and he pays more. Meanwhile my mortgage stays the same, year after year. In fact, it usually goes down, because once my equity reaches 20% I can eliminate the P&I insurance, which is a benefit only to the bank, not to me.

When I started renting out my condo I got around $600/mo rent and I barely broke even, and probably some years I didn't even do that, at least if "cash flow" is all you look at. But all that time the renters were paying the mortgage, while I was reaping the appreciation. When I took my 30% deduction for mortgage interest expense and the other things, the benefits showed up not in the "rent" line but in my bank statement, because my income tax bill went down. Now I have no mortgage, and the renters send me a check for nearly $3000 every month. How is that possibly better for a renter?

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74856 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 2:07 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Goofyhoofy asks,

Now I have no mortgage, and the renters send me a check for nearly $3000 every month. How is that possibly better for a renter?

</snip>


Depends on what it would cost for the renter to buy & maintain an equivalent condo.

http://www.cbsnews.com/media/top-10-cities-where-renting-is-...

Boston comes in as the #2 best city to rent. New York (Manhattan) is #1.

intercst

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74857 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 3:42 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Boston comes in as the #2 best city to rent.

IF you can find a good place at a decent price. Supply is very constrained.

IP

Print the post Back To Top
Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74858 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 6:24 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
When I took my 30% deduction for mortgage interest expense and the other things, the benefits showed up not in the "rent" line but in my bank statement, because my income tax bill went down.

I thought you could only deduct mortgage interest for a primary residence. Can you do it for rental mortgages as well? I don't know much about this.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74860 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 6:43 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I thought you could only deduct mortgage interest for a primary residence. Can you do it for rental mortgages as well?

Yes, and currently for second homes as well, though that is likely to be the first to change.

A rental is a business and you can deduct expenses against income, both rental and ordinary income in some cases . When we had our rental, it lost money on paper, but benefited us when it came to lowering the taxes we paid on our regular income. There are lots of tax benefits to owning a rental, though some of those have been reduced in the past couple of years.

IP

Print the post Back To Top
Author: jgc123 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74862 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 8:16 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
"I thought you could only deduct mortgage interest for a primary residence. Can you do it for rental mortgages as well? I don't know much about this.

I don't do my own taxes, but we save our beach house mortgage interest statement, repair bills, long distance travel expenses (gas and meal costs) and flood, wind and homeowner's insurance bills and give them to our CPA.

Print the post Back To Top
Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74865 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 9:35 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Depends on what it would cost for the renter to buy & maintain an equivalent condo.
http://www.cbsnews.com/media/top-10-cities-where-renting-is-......
Boston comes in as the #2 best city to rent. New York (Manhattan) is #1


Again, you're looking at "today" and today only. If you want to buy something today, yes, you might be better renting. Five years from now? Well, rents will have escalated by 20%, and the mortgage that you bought today will not have changed.

More to the point, 10 years from now your rent will be 50% higher, and your mortgage will not have changed. Along the way you will have been able to deduct your interest expense (which the renter cannot), maintenance fees (which the renter cannot), condo fees (likewise) - and you will have equity. That means if you elect to sell it, you will have gained the appreciation in price from 10 years ago, so you will be buying your new home on a different footing from someone buying for the first time.

It's the difference between putting $10,000 into a safe deposit box or $10,000 into an index fund, then 10 years later deciding to do something with the money. Which is better? The one where the money went to someone else for 10 years? Or the money which paid returns to you for 10 years, and is now worth more than when you invested it?

It's easy to make the "rental" argument if you pretend that nothing ever happens to money, and that there is no such thing as "compounding interest".

But hey, I'm thrilled to have renters. They are paying for my retirement, even as my investment continues to grow and outpace inflation.

(Yes, I'm sure there are a few areas where prices go down, but that is unusual and temporary, in my experience.)
 


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74866 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/25/2014 11:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
I thought you could only deduct mortgage interest for a primary residence. Can you do it for rental mortgages as well? I don't know much about this.

For your home, you can only deduct mortgage interest and property taxes.

When you own a rental, you own a business. So you can deduct all of your business expenses, including mortgage interest property taxes, insurance, homeowners' association dues, utilities, repairs and maintenance, a property manager, and pretty much every other expense associated with the property. You also get to deduct part of the cost of the property as depreciation each year.

--Peter

Print the post Back To Top
Author: StockGoddess Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74882 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/28/2014 9:32 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
If Home Ownership was always a bad investment, landlords would not exist.

Personally, I like equity going up rather than rent going nowhere....and all those lovely tax deductions...and no shared walls.

Of course, DH and I rolled our eyes at what the bank/realtor told us we could "afford" and bought for the payment we wanted - about half that. We've used the rest to save like mad and take some lovely vacations and still paid it off in 18 years.

Nobody wants to be married to their mortgage, but a modest one is a better investment than the black hole of rent (if you plan to stay 5+ years, of course).

SG

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74883 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/28/2014 10:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
StockGoddess,
You got that right - it worked...at least in our situation.
We didn't listen to RE about what would 'could' afford.

We looked at what we felt comfortable with paying for, with the expectation of a child sometime in the future and considering those costs.

15 years for us, that was it, even with refinancing.

Free and clear for many years.

nag

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74885 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 9:00 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
If Home Ownership was always a bad investment, landlords would not exist.


I find home ownership, as in owning my personal residence, to be very different from being a landlord where you are running a business that provides housing for someone else. I do expect being a landlord to be a good investment. Otherwise, why would you be in that business? I was a landlord for 16 years, so I am familiar with this.

But I do not consider my own personal residence to be an investment. I have to live somewhere, and I can either pay rent to a landlord or pay "rent" to the bank in the form of interest. Either way, I need a place to live, and I have to pay for it, but I do not choose my personal residence based on it being an investment as I do not consider it to be one.

Real estate does not always go up. It goes up, and it goes down. Ask people down in Texas in the 1980's who couldn't sell their houses because there were no jobs there. At the very same time, I was in Boston where I watched my real estate property quadruple in value over the first 4 years that I owned it. And then it stayed at that same valuation for the next 12 years when we finally sold it.

In 1983, we used the equity from that rental to put a substantial down payment on our own single family house. Then we watched the value of that house stagnate, fall, and rise back up to what we had paid for it over the next 12 years until we sold it and moved into the current house.

I have seen the value of the current house rise to twice what we have into it, then drop back down a bit, and it's now on the rise and will most likely sell for about twice what we have into it when we sell in a few years.

So yes, we have made money in real estate, but we could have just as easily lost money. It depends on what the market is doing at the time, and you cannot always wait for a market to recover before you sell.

I do consider resale value when I am looking at a property, but I have other criteria much higher on the list.

Nobody wants to be married to their mortgage, but a modest one is a better investment than the black hole of rent (if you plan to stay 5+ years, of course).

I disagree with this statement. If you purchase a property at the height of a market, or even somewhere in the middle of a market's valuation, and then have to sell when the market has tanked, you will lose some of your principal, and you will have also paid interest over that time. It is likely that you would have been better off financially to have been paying rent over that time instead and come out with more money in your pocket.

As I said, for my personal residence, I do not consider it an investment because its primary purpose is to provide me with housing. If I want an investment to provide me with spendable money, I look to other things like stocks or even rental property.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: jgc123 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74886 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 9:40 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Now that this horse has been killed, sent to the knackers yard and sold as glue, I will put on my 'pontificating old geezer' hat.

My experience from 1981 to 2000 was that our houses mostly appreciated in price and our sheltered investment accounts mostly appreciated.

Neither have appreciated as consistently or reliably from 2000-2014 as they did from 1981-2000.

That could mean that our combination of aging population, mechanization replacing people in production lines, exporting of production jobs to other countries for various reasons will mute real returns for the next 20 years or more.

If real returns are muted over the next 20 years or more:

Baby boomers who failed to save enough over the last 30 years are going to have a heck of a time playing catch up regardless of fault being ascribed to each of them individually. A 58 year old (I am 58) is looking at muted returns whether s/he is looking at housing or stocks or bonds.

Baby boomers who may have saved enough to retire continue to work because they are fearful. They continue to hold jobs that could be done by younger workers or underemployed workers trying to stay afloat.

I have reduced my expectations going forward for real returns on stocks, bonds AND my home.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74887 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 9:55 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Real estate does not always go up. It goes up, and it goes down.

So do stocks.

As I said, for my personal residence, I do not consider it an investment because its primary purpose is to provide me with housing.

Which means you simply think of your home as defined differently, but providing you with housing is a way of providing you value...it's just not as easily defined as an investment as dividends from a stock.

I can understand why people believe they are not making an investment when buying their home, but in reality you are. Like a stock, it is hoped to provide value, which for some people includes more than monetary value such as control over one's life and stability, and have residual value when you go to sell. The question really is whether it is a good investment or not, but an investment it is.

IP

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74888 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 10:21 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Real estate does not always go up. It goes up, and it goes down.

So do stocks.


Absolutely. It just seemed to me that on this thread, most people were talking as though their house would only appreciate in price, and that's not true.

Which means you simply think of your home as defined differently, but providing you with housing is a way of providing you value...it's just not as easily defined as an investment as dividends from a stock.

You are correct. When I look at an investment, it is typically because I am looking for its value to increase so that I will have more spendable cash. I cannot spend my house. It is an illiquid asset, and costs me money as I have to do things like pay property taxes, insurance and maintenance. At some point, it will be turned into spendable cash, but it will most likely be when I'm dead and my estate is being settled because I will still need a place to live while I am alive.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74889 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 10:32 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I cannot spend my house. It is an illiquid asset...

Nor can you "spend" a stock, at least without selling it. But you can borrow against both, either via margin or mortgage/home equity line of credit. We just took out a $100K line of credit against our home equity to use as needed.

IIRC, when you go for a mortgage, lenders will also look at stocks and mutual funds as "illiquid."

IP

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74890 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 10:41 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Nor can you "spend" a stock, at least without selling it.

Sure, but I don't have to move and find another place to live if I sell my stock to spend the money. In fact, I'd argue that I have stock with the intention of eventually spending that money. I do not, however, have my house so that I can eventually spend it.

Maybe we just have a different philosophy on housing, and what works for me doesn't work for you, and vice versa. That's OK. There's nothing that says that everyone has to have the same risk tolerance or investing strategy or priorities or goals. Ours just seem to be different than yours, and there's nothing wrong with that.

It is always good to hear another opinion/strategy to see if something new might work better for me, so I appreciate the discussion.

Print the post Back To Top
Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74891 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 12:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
I can understand why people believe they are not making an investment when buying their home, but in reality you are.

Perhaps, but are you investing when you make a rent payment?

If someone is simply deciding that financially, it makes more sense (cash flow, total expenses, etc.) to have a mortgage payment instead of a rent payment, is it still an investment? Would an interest-only loan still qualify as an investment?

Does the same hold true with a person that decides to lease a vehicle versus purchase? Is the later considered an investment?

Is it title and ownership that makes it an investment? If so, does that mean I AM NOT investing when I sell a put or a call? I received compensation for the sale of such yet I own nothing.

Not disagreeing with you, just trying to better understand your points. Thanks.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74892 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 12:53 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Perhaps, but are you investing when you make a rent payment?

Personally, I would consider that a purchase of short term accommodations with no potential for either gain or loss, nor expectation of ownership or resale. Can you have an investment with no potential for loss or gain, interest or income? At some point in time when it is no longer desirable for you to live in the home you bought, you sell it or give it to someone.

Investment: the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. http://dictionary.reference.com/browse/investment

If someone is simply deciding that financially, it makes more sense (cash flow, total expenses, etc.) to have a mortgage payment instead of a rent payment, is it still an investment? Would an interest-only loan still qualify as an investment?

What would the terms of purchase have to do with the definition? We paid cash for our second home and I consider that a great investment, and still will be one when it becomes our principal residence.

Does the same hold true with a person that decides to lease a vehicle versus purchase? Is the later considered an investment?

Given it is the rare vehicle that is not a depreciating asset with little to no expectation of potential gains, I would say that would be a stretch. The counter argument to this would be a classic car that you expect to gain in value.

If so, does that mean I AM NOT investing when I sell a put or a call?

Heh, some may call that speculating. ;-) However, the little I understand puts and calls tells me you are investing with the good faith that you will pay if your put/call is not profitable, often backed up by other investments with the same broker. It is essentially a secured loan, correct? While you do not buy the stock, you buy the option.

I think it is the very rare person that does not hold out the expectation that over time the value of their home will increase, even if it is sold only upon their death, and/or they do not count on that appreciation to afford it. Expectation of gain may only be a very distant reason to purchase, but it is still typically there. We have been trying to sell Dad's house in NC for a couple of years now, and will lose a considerable amount of money. I still consider his purchase an investment, albeit a really poor one. Then again, he didn't ask at the time, but he sure did talk about no longer "throwing his money away."

It's a matter of semantics.

IP

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74893 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 1:00 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Real estate does not always go up. It goes up, and it goes down.
...

I do consider resale value when I am looking at a property, but I have other criteria much higher on the list.

...

for my personal residence, I do not consider it an investment because its primary purpose is to provide me with housing.


These statements tell me that while you do not choose your home as an investment FIRST, home second, you do view it as an investment, even if that is not your primary motivation in purchasing it. You are aware of resale, that it may gain or lose value. That fits in with the definition of investment.

IP

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74894 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 1:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 8
These statements tell me that while you do not choose your home as an investment FIRST, home second, you do view it as an investment, even if that is not your primary motivation in purchasing it. You are aware of resale, that it may gain or lose value. That fits in with the definition of investment

OK, you win.

Apparently, you know me better than I know myself.

Print the post Back To Top
Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74895 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 1:58 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Apparently, you know me better than I know myself.

All I have to go by are the words you type on the page, including the statement " ...I appreciate the discussion."

Guess I shouldn't have taken that literally either. :-)

IP,
not great with subtle hints, but certainly understanding loud and clear this time

Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74896 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 2:09 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
2gifts writes,

Real estate does not always go up. It goes up, and it goes down. Ask people down in Texas in the 1980's who couldn't sell their houses because there were no jobs there.

</snip>


When I moved to Houston in 1981, I paid $400/mo for a 1-bedroom apt about a mile from the Galleria Shopping Center. After the real estate bust in 1985, it was probably $200/mo after everyone left town. (I fled to California.) Rents didn't return to their pre-crash high until about 1994

That apt complex is still there today and has been renovated several times in the interim, so it's in good shape. With Houston booming and rents at an all-time high, that same apt is only $675/mo today 33 years later. Engineering salaries in the oil industry have quadrupled over that time.

If you rented in Houston and put put your savings in the stock market over the past 33 years, you likely did very well. You may even have retired at a very early age.

intercst

Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74897 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 2:16 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 11
inparadise writes,

<<I cannot spend my house. It is an illiquid asset...>>

Nor can you "spend" a stock, at least without selling it.

</snip>


It's actually remarkably easy to sell a few shares of a large block of stock if you need income. It's much harder to sell a few shingles or a plumbing fixture if you're looking to generate income from your home.

intercst

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74898 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 2:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
When I moved to Houston in 1981,

I'll see your 1981 Houston and raise you a 1974 Huntington Beach. Modest 3 bed, 2 bath house in a non-descript tract cost about $40k. With a 30 year loan at 6%, the monthly payments would have been around $240. Add taxes, insurance and maintenance, and you're probably near that $400 a month apartment rent.

So over the next 33 years you can make the same investments as the Houston renter.

30 years later, the mortgage cost drops to zero, although the taxes, insurance and maintenance have probably increased to perhaps something about that $675 a month for the Houston apartment.

So monthly outflow is about the same for housing.

While oil engineering jobs are scarce in Orange County, there were a lot of aerospace engineering jobs available over that time frame. Those engineering salaries also saw something close to a 4 times increase. So over time, the cash available for investing was about the same and the accumulated investments would therefore be the same.

Except that the homeowner has, well, a home. Worth $500k or so.

Once again, home ownership vs. renting is not an easy decision. Crystal balls are very handy. And home ownership CAN be a better choice than renting.

The reality is that homes generally go up in value at about the rate of inflation. Some will do better than inflation, some worse. I think the key to home ownership is a long-term commitment to staying in that house. Conventional wisdom says don't buy unless you plan to stay put at least 5 years. I'd say you need 10 to 15 at a minimum to make a home purchase a good choice. Less than that and renting is probably the safer route.

--Peter

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: syke6 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74899 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/29/2014 5:51 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 5
Once again, home ownership vs. renting is not an easy decision.

But it isn't terribly difficult either. One thing that has barely been mentioned in this discussion is the examining the cost of ownership vs. the cost of renting in that location. In some places buying is a screaming bargain, in other places it isn't.

Once you evaluate the costs of each, you can make a pretty good decision which is likely to be financially wiser.

Print the post Back To Top
Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74901 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/30/2014 8:47 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
But it isn't terribly difficult either. One thing that has barely been mentioned in this discussion is the examining the cost of ownership vs. the cost of renting in that location. In some places buying is a screaming bargain, in other places it isn't.

Brooklyn is a great example of this. Any neighborhood we'd want to live in here is too expensive (for us) to buy. So we rent, and we don't consider it a loss at all. We live in a wonderful neighborhood and that has value that's hard to put a number on.

Print the post Back To Top
Author: tjscott0 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74906 of 75383
Subject: Re: Home Ownership not a good investment Date: 4/30/2014 5:13 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Thought this article might be of interest on this topic.

http://finance.yahoo.com/news/homeowners-regrets-buying-a-ho...

One out of four homeowners admit they wouldn’t buy their home again if they had the chance, according to a recent survey by real estate brokerage Redfin.

The biggest factor contributing to homebuyers’ remorse appeared to be affordability. Nearly one-third of homeowners who reported a household income of less than $100,000 said they were unhappy with their decision. In contrast, just 14% of homeowners who earned more than $100,000 said they were unhappy, according to the survey.

Younger homeowners were also more likely to have regrets. About 28% of homeowners under 65 said they regretted buying their home, compared to 14% of senior homeowners. And one in five homeowners with kids still living at home said they regretted their home purchase as well.


I imagine those with lower incomes didn't figure in maintenance costs on their homes. The major benefit of renting is that there isn't any concern/cost of maintenance. If the landlord doesn't maintain the property; one can always move.

Print the post Back To Top
Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74907 of 75383
Subject: Re: Home Ownership not a good investment Date: 5/1/2014 7:04 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Putting more on principal, to reduce the mortgage, adding onto your mortgage payments is a no-brainer.

We had a manager once who said something was a no-brainer. All us engineers in the room went, "Uhhhh..." ::eyeroll:: until one finally said, "No, actually that's a brainer."

Without the eyeroll: No. Adding onto your mortgage payments is a brainer. Don't do it.


Even 10 bucks extra, now you own that door knob.
Um, no. Now you will own that doornob a few days earlier, 20-30 years from now.

Print the post Back To Top
Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74908 of 75383
Subject: Re: Home Ownership not a good investment Date: 5/1/2014 7:32 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Hawkwin: "SS, unlike an ACA subsidy, is a return of your own money . . . ."

I disagree. It is not a return of one's own money! There is no speciic account into which one's SS taxes have been deposited (and then invested) and are being held for return at a later date. In addition, the court cases are pretting clear: Helvering v. Davis, 301 U.S. 619 (1937), in which "the Court had ruled that Social Security was not a contributory insurance program, saying, 'The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.' " http://www.cato.org/publications/commentary/is-there-right-s...... & Flemming v. NestorR 363 U.S. 603 (1960) and Helvering v. Davis, 301 U.S. 619 (1937) in which the Court held no vested right to benefits.


All this is true. And competely beside the point.

Everybody, EVERYBODY, believes that -- and acts as if -- SS is an account that belongs to them and that their SS tax goes into an account and therefore their SS payment is a return of that investment. Even though almost everybody _also_ knows that it is no such thing and that it is indeed as you stated.

It's the difference between knowing something in your heart vs. knowing something in your head. Even though you know your head is right, you'll act & respond according to what you feel in your heart.

Plus, as mentioned up-thread, if SS ever takes on the characteristics of looking like welfare rather than a return of the money that you paid into SS, that will be its death knell.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74909 of 75383
Subject: Re: Home Ownership not a good investment Date: 5/1/2014 7:49 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 16
And this is a high market, not a good time to put money in.

Higher than the past, yes. But so what? What matters is where it is now compared to where it will be in 20-30 years. Because that's the duration of the mortgage we are comparing to.

And so the question is: Has there ever been a time when someone looked back and said, "Man, I sure wish that I hadn't invested in the stock market 20 years ago."? Hint: No.

The WORST 20 year period since the S&P500 began (Jan 1950) had an overall annual return of 6.3%. That was July 1959 to July 1979. The median 20-year return was 11.0%.

The worst 25 year return was 7.2%. The worst 30 year was 9.0%. The respective medians were 10.3% and 10.8%. The averages were 10.8%, 10.9%, and 11.1%.

Seeing as the worst historical case was 6.3% in the market and current mortage rates are ~4%, the case for paying off the mortgage ASAP is weak.

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74918 of 75383
Subject: Re: Home Ownership not a good investment Date: 5/1/2014 9:17 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Looking back at Historical stock gains are interesting but they do not give a clear indication of a given day, a given moment, or even given stock.

Overall returns do not state that everyone got those returns.

I'm sorry but you can buy the
Wrong House
in the Wrong Place
at the Wrong Time.

Same with stocks.

Your mileage might vary. In considerable ways.
Same with a house.

It's all a crap shoot, but I think we should try to be as educated as possible to make the most educated guess.

nag

PS We wanted it all, to own a darn doorknob and invest - and split the differences. All were invested in and have paid off.

Print the post Back To Top
Author: nagdabbit Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74919 of 75383
Subject: Re: Home Ownership not a good investment Date: 5/1/2014 9:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I just had a bill to pay,

it was an individual decision to pay the house off yet still invest.

Everyone has to make their own decision on what's right for them.

And cross their fingers as we have.

nag

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (97) | Ignore Thread Prev Thread | Next Thread
Advertisement