Why you should buy now in Houston FAQ's (West, Howe: sales, renting)

[chris_ut]

Mom2Feebs,

I think your confusing an investment with an asset. If I put $25,000 a year into a 401k mutual fund returning 10% then in 30 years I have $2.85 million at the end. If I pay $25k per year into my 200k house then at the end of 30 years I have a 200k house that I don't owe any money on. It might be worth 300k by then but that is mostly due to inflation, not investment returns.

[EasilyAmused]

I have ALWAYS approached my home buying as an investment. Doing so I've doubled and even quadrupled my original cost each time. The one place that you can't do this, nor would I EVER buy in would be an xburb. You are lucky to get out with what you bought it for, kissing any improvement costs and commission recoups goodbye.

[desertsun41]

Originally Posted by chris_ut

Lets take a simple example. Say in January you buy a 200k house at 6.5% and you hold onto it for 5 years, Here are your estimated expenses:

Closing costs: $4000
5 years insurance: $5000
5 years taxes: $30,000
5 years interest on loan: $52,530 (adjusted for tax savings)
Maintenance & Yard Upkeep: $4000

Total sunk cost for 5 years: $95,530

That means that if you sell that house for less than 295,531 you lost money on it. You could argue that your saving rent money but your also spending more for utilities, furniture, etc. You might get lucky and sell at the top of a housing boom but thats not really an investment is it just a gamble.

You forgot to factor in the good ol mortgage interest deduction that good ol good for nothing Uncle Sam so generously gives us. That more then cuts in half that $95,000 example.

[Mom2Feebs]

Originally Posted by chris_ut

Mom2Feebs,

I think your confusing an investment with an asset. If I put $25,000 a year into a 401k mutual fund returning 10% then in 30 years I have $2.85 million at the end. If I pay $25k per year into my 200k house then at the end of 30 years I have a 200k house that I don't owe any money on. It might be worth 300k by then but that is mostly due to inflation, not investment returns.

No, actually, I am not under any confusion. I know what an asset is. I know what an investment is. Some people treat them the same way. I can appreciate that.

I also know that it would really suck if you counted on your 401K if you, say, worked for Enron. I wonder if those people are counting their lucky stars that they have a home at all.

[texas7]

I didn't mention mutual funds - I think that was meant for another poster.

[tstone]

No it wouldn't suck if you counted on your 401k if you simply worked for Enron. If you worked for Enron AND were stupid & sheep-enough to buy into their propaganda to put all your eggs in one basket (DUH!!!!!), it would suck to be you.

Speaking of propaganda, you cannot convince me that my Houston homestead is an ''investment.'' It beats renting day and night, but it is absolutely an asset and a piggy bank of sorts like someone said. You always need your own home once your income ceases at age 65ish. Houston is a great place for that.

Now if I were homesteading in California or the west coast, maybe on the east coast it is absolutely an investment. You can make out with a killing, move to a Texas ranch with cash money, or get completely ruined. Very risky business, but as they say: the more risk, the more potential. And like any other true investment, you need buku ca$h to even get started. (In other words, middle class need not apply.)

Houston? Most places here have about zero risk. In other words, not an investment. There are some investment opportunites here, just like there are in any other big city. Definitely not mine, and I'll bet money not for the vast majority of folks in here either.

And that tax deduction is saving people less than they'd like to think. Not to be confused with tax credit. As the standard deduction keeps rising, and as you keep paying your mortgage (interest amounts falling month after month - see your amortization), the savings eventually converge to cha-ching: zero!!! Using the tax deduction excuse is equivalent to the statement, "I spent $10,000 this year just so I could save $1,500." LAME and not convincing. But I will say this is a good reason to buy instead of rent, as your dollar goes a tad bit farther.

But I guess they also say... if you keep repeating lies over and over again, it becomes the new truth. (1984 ish) Or maybe it's just truthiness: true because it's felt from the heart, not from factual information (numbers).

*sigh* Oh well. la la la la life goes on.

[chris_ut]

I did actually adjust the interest down to take tax savings into consideration which I noted there in the parentheses.

[AGGIEZ]

Originally Posted by desertsun41

You forgot to factor in the good ol mortgage interest deduction that good ol good for nothing Uncle Sam so generously gives us. That more then cuts in half that $95,000 example.

He didn't mention the equity you're building in the home either. How much equity would you have in the home after 5 years? Potential appreciation of the home?

Spending more on furniture? Not really sure how that is relevant. I guess you could say you're probably spending more on toilet paper as well because you'd probably have an additional 1\2 bath in a home.

Sure, there are better ways to invest your money, but if you're going to say that buying a home isn't an investment then I guess putting your money in a money market fund isn't an investment either becuase of the minimal returns...

[tstone]

Tax savings is definitely a good thing, don't get me wrong. It is one of several reasons one should buy anywhere instead of rent. Not buy in Texas because it's "an investment." I don't think so. The people saying that are most likely revolving high-interest credit card debt when they have a nice savings in the bank. Some just don't understand tax codes number games, nor the law of exponents.

Now I will say one should be looking for reasons to take tax credits. Those save you true money, without all the number games. Example: Need an A/C? Go ''green.'' (i.e. highest SEER and R-410A) It's a little more expensive up front, but the tax credit usually evens out the initial costs. Add that with cheaper electric bills month after month for 10-12 years, and it's a no brainer.

Aggies: appreciation is probably running most of us 3-5%, as are our money markets. Our money markets, though, don't need insurance, nor is it taxed to the degree properties are, and they usually aren't charged $400-500/yr fees, either. Also, equity is value on paper, while I can cash out my money market tomorrow and run to Mexico with it.

[jfre81]

Originally Posted by chris_ut

Mom2Feebs,

If I pay $25k per year into my 200k house then at the end of 30 years I have a 200k house that I don't owe any money on....

...and then you're still paying property taxes every year.

Now I may not be a realtor, but something tells me if my house appreciates in value but I don't want to sell and don't plan to, then all that appreciation has earned me is the right to pay more property taxes.