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Exactly my point when I wrote that buying a house is similar to investing. The masses get it backwards. People are still sitting on the sidelines with investments because they were asleep in 2008/09 and still feel the sting. Eventually everyone will feel confident again and overbuy the market. I should be selling well before that happens. My strategy is simple. Buy when the market is doing badly and everyone is worried. Sell when the market is doing well and everyone is confident.
Right on, Right on!!!, Thats why I have some money set aside just sitting in my cash account at the brokerage waiting for the stock market to crash again. I made a killing off of Ford Motor company and GE stock the last time it happened in 2008. The stock market may not crash but historically speaking it will and the fiscal policies of our country have me leaning to a sooner rather than later. I bought a house in the Florida Keys 3/2010 and it has slowly but steadily gone up in value. I don't so much consider it an investment but more of a retirement/vacation home. I paid 191k. At one point in 2007 it was valued at 413k. I watched my friend buy one half of a duplex in my same housing development in 2001 for 143,500 and sell it in 2004 for 330k with nothing more than a interior paint job. I watched that exact same duplex 3 blocks from my house sell for 115k in early 2010 have new windows installed and sell for 154k in late 2010. I know historically speaking everything even real estate is cyclical so I am hoping for a big 500k sale price someday and then waiting for the Florida real estate market to crash again. If that doesn't happen at least i will at least be able to live in and enjoy what I consider paradise.
Yeah, you gotta live in the house or rent it out to turn it into a profitable investment. I've never heard of any successful real estate investors who buy a bunch of houses, let them sit there vacant for many years, and cash out huge.. at least not in the US (it's been done in Asia where there's more than enough momentum in real estate prices to offset the maintenance, taxes, etc.)
Assuming you're buying now, which most experts would agree is a buyers market, and assuming you can get a rate under 5% it's a no brainer.
The cool thing about a fixed rate mortgage is that the monthly payment will not go up one dime for the next 30 years. This is an EXCELLENT hedge against inflation. This is how a lot of average wage earners aquired property in pricey markets like San Diego or San Francisco, New York City etc. They bought low and held on in a hot market, most likely with no expectations of what inflation would do to their property value.
You'll have maintenence to deal with (buy a small rambler) but you also get tax breaks on mortgage interest and property taxes.
Once you buy your first home it'll be a smaller step to rental/investment property, or just an upgrade to a bigger cooler house. Start the learning curve.
If it turns out that homeownership doesn't ultimately suit you, you'll know you at least gave it a shot, and the knowledge will help in other more general areas of your financial strategies.
When you rent there's no principle applied to mortgage.
Assuming you're buying now, which most experts would agree is a buyers market, and assuming you can get a rate under 5% it's a no brainer.
The cool thing about a fixed rate mortgage is that the monthly payment will not go up one dime for the next 30 years. This is an EXCELLENT hedge against inflation. This is how a lot of average wage earners aquired property in pricey markets like San Diego or San Francisco, New York City etc. They bought low and held on in a hot market, most likely with no expectations of what inflation would do to their property value.
A home bought for '100k' will usually also have around $5k in closing costs.
A $100,000 loan at 5.0% interest, for 30-years, gives you a $536.82 monthly payment.
$536.82/month X 360 payments = $193,255 total amount paid on the loan.
That $100k home cost $198k [including the original closing costs]
If that home's market price doubled over the course of 30-years [$100k to $200k], than at the 30-year point your "EXCELLENT hedge against inflation" has not.
You have paid $200k into an 'investment' that is then worth $200k, and this assumes that your market value has doubled.
A home bought for '100k' will usually also have around $5k in closing costs.
A $100,000 loan at 5.0% interest, for 30-years, gives you a $536.82 monthly payment.
$536.82/month X 360 payments = $193,255 total amount paid on the loan.
That $100k home cost $198k [including the original closing costs]
If that home's market price doubled over the course of 30-years [$100k to $200k], than at the 30-year point your "EXCELLENT hedge against inflation" has not.
You have paid $200k into an 'investment' that is then worth $200k, and this assumes that your market value has doubled.
A home bought for '100k' will usually also have around $5k in closing costs.
A $100,000 loan at 5.0% interest, for 30-years, gives you a $536.82 monthly payment.
$536.82/month X 360 payments = $193,255 total amount paid on the loan.
That $100k home cost $198k [including the original closing costs]
If that home's market price doubled over the course of 30-years [$100k to $200k], than at the 30-year point your "EXCELLENT hedge against inflation" has not.
You have paid $200k into an 'investment' that is then worth $200k, and this assumes that your market value has doubled.
Doubling in price after 30 years is generally lower than the rate of inflation.
Assuming you have a standard fixed-rate mortgage, real estate can be a great inflation hedge.. they have no say in changing the terms of your mortgage even if inflation rates go through the roof.
A home bought for '100k' will usually also have around $5k in closing costs.
A $100,000 loan at 5.0% interest, for 30-years, gives you a $536.82 monthly payment.
$536.82/month X 360 payments = $193,255 total amount paid on the loan.
That $100k home cost $198k [including the original closing costs]
If that home's market price doubled over the course of 30-years [$100k to $200k], than at the 30-year point your "EXCELLENT hedge against inflation" has not.
You have paid $200k into an 'investment' that is then worth $200k, and this assumes that your market value has doubled.
Yeah, I guess you're right....... I'm gonna sell everything and pay rent to a landlord like a smart guy would do.
The analysis by Submariner is good but conservative -- it does not include the cost of taxes and upkeep. And regarding rentals, don't forget that the owner gets to depreciate the structure, which often nets out to lower rents in a competitive market.
Homeownership is not a slam-dunk as an investment. My last house, which was in an excellent, appreciating neighborhood, barely broke even with respect to inflation over the course of about 15 years. This is typical. And believe it or not, some houses actually decrease in value (ask your friend from Detroit).
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