Is your primary home really an investment? (trading, puts, cash)

[Texas User]

Some calculations show that you are actually throwing more money away in the long run then by renting.

So why not rent and save that money to invest in the stock market and elsewhere?

[chet everett]

Because only SOME calculations show that? I am pretty sure that SOME calculations show that LOTS of money "invested" in stock market and elsewhere is "thrown away" too...

[sterlinggirl]

Originally Posted by Texas User

Some calculations show that you are actually throwing more money away in the long run then by renting.

So why not rent and save that money to invest in the stock market and elsewhere?

My investment in a home pays a guaranteed dividend of allowing me to live there. Rent savings is 6-7% of the home's value every year, while upkeep and taxes are about 2%. That works out to a 4-5% ROI that the IRS can't touch.

Whether my home goes up or down in dollars is irrelevant for the most part. It will always be worth as much as a house, so when it's time to sell it and move on, I can be reasonably sure that I'll have enough money to buy another one.

[NewToCA]

Lifestyle counts too, especially if you are raising kids. I've owned 7 homes in 5 cities the past 33 years, and don't regret any of the purchases.

Financial aspect was always secondary to me.

[Boompa]

Originally Posted by Texas User

Some calculations show that you are actually throwing more money away in the long run then by renting.

So why not rent and save that money to invest in the stock market and elsewhere?

Good Luck with that

[hindsight2020]

Originally Posted by sterlinggirl

My investment in a home pays a guaranteed dividend of allowing me to live there. Rent savings is 6-7% of the home's value every year, while upkeep and taxes are about 2%. That works out to a 4-5% ROI that the IRS can't touch.

Whether my home goes up or down in dollars is irrelevant for the most part. It will always be worth as much as a house, so when it's time to sell it and move on, I can be reasonably sure that I'll have enough money to buy another one.

No, not really. If you're saying your TOTAL cost of housing is LESS than market rent, then you have a point. However, that's usually not the case unless you take a highly iliquid approach to your money (high downpayment). So that's an opportunity cost that is not easily measurable by just simple math, there are non-economic valuations to liquidity.

As to home appreciation, that's largely a 20th century wives tale. Those days are gone. It will take decades for a home to appreciate enough to cover a house upgrade. Furthermore, any cash you invest in a house loses all liquidity, because it is tied permanently to the roof over your head. If you have a utilitarian valuation to your home (I do), that's fine so long as you can afford never needing that money in liquid, 'cause you'll never get it back without removing your shelter, which puts you right back in the same boat as the aforementioned renter and his supposed "wasting away" in rent.

Banking on an inflationary appreciation is like robbing peter to pay paul. Even if you make a killing, the only way you come out ahead is by downsizing homes, otherwise you give that paper wealth back to the house when you buy the next inflated one. Housing has always been a "bigger fool" game. And don't get me started on mortgage interest deduction. Spending an extra $1 just so you can tell people you saved $0.35. Retarded. You could have bought a mobile home and kept the original whole dollar for other uses. Or rented a house instead of renting the money to de facto rent a house (home-loanership). Housing is very much like other iliquid assets such as airplanes. In reality they don't appreciate much over inflation and they retain value so the real value to them is the utility, which is a consumable, which is a net cost not a net gain.

And I say this as a homeowner.

[sterlinggirl]

Originally Posted by hindsight2020

No, not really. If you're saying your TOTAL cost of housing is LESS than market rent, then you have a point. However, that's usually not the case unless you take a highly iliquid approach to your money (high downpayment). So that's an opportunity cost that is not easily measurable by just simple math, there are non-economic valuations to liquidity.

When you buy a house with cash the math is pretty simple. As I stated, mine returns ~5% tax free through rent savings with very little downside risk.

As to home appreciation, that's largely a 20th century wives tale. Those days are gone. It will take decades for a home to appreciate enough to cover a house upgrade. Furthermore, any cash you invest in a house loses all liquidity, because it is tied permanently to the roof over your head. If you have a utilitarian valuation to your home (I do), that's fine so long as you can afford never needing that money in liquid, 'cause you'll never get it back without removing your shelter, which puts you right back in the same boat as the aforementioned renter and his supposed "wasting away" in rent.

I think you're right that I won't get rich on home appreciation, but I also won't get wiped out through a currency crisis if the lemmings on the trading desks decide to take the dollar over a cliff. A house is inherently worth as much as a house, regardless of how many dollars it takes to buy one.

Yes it's an illiquid investment, but if you'd like to show me liquid investments that will give me 5% after taxes with minimal risk I'll be happy to take a look at them.

Banking on an inflationary appreciation is like robbing peter to pay paul. Even if you make a killing, the only way you come out ahead is by downsizing homes, otherwise you give that paper wealth back to the house when you buy the next inflated one. Housing has always been a "bigger fool" game. And don't get me started on mortgage interest deduction. Spending an extra $1 just so you can tell people you saved $0.35. Retarded. You could have bought a mobile home and kept the original whole dollar for other uses. Or rented a house instead of renting the money to de facto rent a house (home-loanership). Housing is very much like other iliquid assets such as airplanes. In reality they don't appreciate much over inflation and they retain value so the real value to them is the utility, which is a consumable, which is a net cost not a net gain.

Agreed, with the exception that home ownership is a good hedge against the risk of ever-rising rents during periods of inflation and property booms.

[forest beekeeper]

Even before the bubble burst, to buy a '$100k home' on a 30-year mortgage, often meant that you would spend $300k to finally get it paid off.

Now before the bubble popped, would you honestly expect to sell that home for $300k? or more?

In that context, I do not see buying one as in 'investment'.



We only bought apartment buildings, zero-down and the rental income has carried the payments on each. They have each provided for my family a home to live in, though not much real income. However they have not cost us money either. They built equity and provided us tax-sheltering.

Then when I retired I sold most of them [or re-financed the equity directly out from the property that we have kept] and used the money to buy a farm.

To us, our 'homes' have been investments.

We have invested other folks' money, our portfolio grew, and we made a profit for it.

Even with this recession, I do not see why someone could not do our method again and again.

[treasurekidd]

Never mind real estate bubbles or any of that nonsense. If you buy a homewhen prices are relativley low, such as now, you will eventually be able to sell it for a higher price. I bought my house in 2001, paid $107,900, and now,even with prices depressed from more recent highs, one house, close to me and very similar to mine, just sold for $258,500. So yes, like any other investment, if you buy the right house at the right time, you get a great investment as well as a home.

[homeowner35]

Originally Posted by treasurekidd

Never mind real estate bubbles or any of that nonsense. If you buy a homewhen prices are relativley low, such as now, you will eventually be able to sell it for a higher price. I bought my house in 2001, paid $107,900, and now,even with prices depressed from more recent highs, one house, close to me and very similar to mine, just sold for $258,500. So yes, like any other investment, if you buy the right house at the right time, you get a great investment as well as a home.