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We bought a co-op as an insider since we were renters because that was a better deal then renting. Held it for a few years and during the co-op craze sold it for 3x what we paid in just a few years.
Bought a house with just about cash since in those days we had to roll the money over in to something else.
Then sold the house since it became to much of a headache with constant repairs and maintaince.
Now we had a bunch of cash to invest so instead of buying a co-op we decided to rent and invest elsewhere. So that is where we got the money.
We utilized whatever was the best way at the given time..
That is why the study's show it is not only time frame sensitive but a case by case issue.
When you buy a home you rent essentially for 15-30 years with yes SOME assurance of equity, but once
You calculate improvements and essential replacement including hot water heater, air conditioner , roof
Landscaping taxes your generally in the hole in the end but not always. Mush is determined by the market, location desireability. We just looked at two homes zoned on a single lot where No improve - ments were even attempted ,combined taxes $4200 or $42 k in ten years. The house interior was sooooo dated we almost got sick Torqoise refrig?? The most ugly laced (rotting) curtains, dirty fireplace, old cabinets and water issues due to poorly pitched yard. All this for 265k!!! I might consider $160k AFTER fill in back and removal of scum sucking appliances and garage junk. It actually angers me how stupid and arrogant In this case powers of attorney literally neglect these homes with zero responsibility to lift a finger to"prepare" for sale. Not even a walk through!!!! 160k take it or leave it !!! After consideration we decided we were taxed out and decided to rent indefintely.
Talk to me about this – am I over-thinking the illiquidity of an investment in a home?
This depends on you as a person, AND where you live. Reason I say this, is because here in the Portland-metro area rent has been spiraling into the stratosphere, trying very hard to catch up with California, and we're at a crisis because of the lower-income people who can't afford it. Homes are being snatched for more than they should be selling, which doesn't help. So, for this area, I would have a hard time recommending the option of renting to anybody. But if one can afford it then go right on ahead.
ill-liquidity in a home was a big problem for many folks . they basically had to take or stay with crappy local jobs in some areas because they could not relocate and sell with their homes under water and a poor market to go where the better jobs were . .
When you buy a home you rent essentially for 15-30 years with yes SOME assurance of equity, but once
You calculate improvements and essential replacement including hot water heater, air conditioner , roof
Landscaping taxes your generally in the hole in the end but not always. Mush is determined by the market, location desireability. We just looked at two homes zoned on a single lot where No improve - ments were even attempted ,combined taxes $4200 or $42 k in ten years. The house interior was sooooo dated we almost got sick Torqoise refrig?? The most ugly laced (rotting) curtains, dirty fireplace, old cabinets and water issues due to poorly pitched yard. All this for 265k!!! I might consider $160k AFTER fill in back and removal of scum sucking appliances and garage junk. It actually angers me how stupid and arrogant In this case powers of attorney literally neglect these homes with zero responsibility to lift a finger to"prepare" for sale. Not even a walk through!!!! 160k take it or leave it !!! After consideration we decided we were taxed out and decided to rent indefintely.
Landlords always include maintenance in the monthly rent. People always seem to think Landlords are these magical people who just pay for problems out of their own pockets. The house you live in may cost the landlord $1500 a month. Then they'll add in $100 a month for property manager, then $100 a month for maintenance, then another $100 to be cash flow positive.
My wife and I rented an amazing condo on the hudson river overlooking NYC. The place was $400k, $12k in taxes and $450 HOA. The owner got shafted during 2008 and was renting to us every month for a loss at $2,200. When the market in that area turned around he decided to sell. We knew we couldn't afford it so we lost the home we loved so much.
I never saw anyone take you up on this example so I'll bite.
Suppose Joe Homeowner and Jane Renter each have $80,000. JH puts it down on the $400k house and JR puts it in the stock market and rents the $1500/month place.
Assumptions for JH: 30-year mortgage at today's interest rate, tax = 1% of assessed value, insurance = $1,000/year (rising with inflation), maintenance budget = 1% of home value, home appreciates at the same rate over the next 30 years (2015-2045) as the national average over the previous 30 years (1985-2015, 4.55% per year average).
In 30 years, JH has a paid-off home worth $1,519,731 million and a monthly housing payment of $2,735 (taxes/insurance/maintenance only).
Assumptions for JR: rent increases at average inflation rate over past 30 years (3%) and stock market returns average 7%/year. JR ends up with $1,540,882 in investments and a monthly housing payment of $3,641.
So in retirement JR ends up slightly wealthier in terms of net worth, but has $906/month additional required expense to keep a roof over her head. Looks like renting loses out over the 30 year horizon, even in this extreme example.*
* I'm not sure I actually believe that a property "equivalent" to a $400k house can be rented for $1500 in Seattle, based on some second-hand familiarity with the market. I'd love to see the examples of properties for sale/rent that prove this can be done.
Yes, JR has the added expense, but the earnings on the investment portfolio more than cover it, even at the low current dividend yields of ~2% and allowing capital to continue growing without selling shares. This is hardly a problem for JR!
Also, 4.5% annual appreciation is an aggressive assumption given that over the last 120 years, the Case-Shiller Index has only increased a few tenths of a percent above inflation, and this figure could well be zero if you adjust for changes in square footage. If you compare the typical 1000 sq ft house in 1950 to the typical 2000 sq ft house today to get your appreciation rate for today, you are basically comparing apples to oranges. I'd argue 3% or (if you want to stretch) 3.5% is a more realistic value. But of course it will not be the same everywhere.
Landlords always include maintenance in the monthly rent. People always seem to think Landlords are these magical people who just pay for problems out of their own pockets. The house you live in may cost the landlord $1500 a month. Then they'll add in $100 a month for property manager, then $100 a month for maintenance, then another $100 to be cash flow positive.
My wife and I rented an amazing condo on the hudson river overlooking NYC. The place was $400k, $12k in taxes and $450 HOA. The owner got shafted during 2008 and was renting to us every month for a loss at $2,200. When the market in that area turned around he decided to sell. We knew we couldn't afford it so we lost the home we loved so much.
Renting isn't always all its cracked up to be.
i never get to include maintenance in the rent . i only get what tenants are willing to pay .
when i bought our first property i tried increasing the rent from 850 to 900 because mortgages were high then and i was at loss . my tenant moved and ultimately i had had no takers a month later so i went back to 850 like all the other apartments like mine in the area .
after we did the 8k in renovations since one of our tenants literally destroyed so much i got nothing extra that i couldn't have gotten had things not had to be replaced and repaired .
it is no different than anything else we buy , your personal costs do not matter only the costs of the group at large ,.
the market does not care if i have a morgage and your apartment is paid off . it does not care i replaced the stove and refrig from age .
it is rare people will pay whatever you ask and if they do you may have to wait so long that you give up more than you get in an increase .
i learned that the hard way ,, by experiencing it ..
iif you were selling a car and it got damaged , you can't ask anymore for it because you restored it back to normal . there are certain levels you need to maintain .
Last edited by mathjak107; 09-12-2015 at 05:14 AM..
Owning a home is a lifestyle decision. I can't rent the at the quality level I have in my home. If my only goal in life was to optimize for my net worth, I'd live in the cheapest studio apartment I could find, drive a used econobox, and spend nothing other than essentials like self-prepared food and Walmart clothing. I'd invest the rest of my paycheck in the stock market.
If I'd done that, I'd have a net worth of many millions now. That is not the lifestyle choice I made. I own two homes. I have done extensive remodeling projects that would return barely 30 cents on the dollar if I had to sell my primary residence. The car I drive is 3x the ownership cost of a used econobox. I own a boat that eats 5% of my gross pay every year. I pour a lot of disposable income into skiing. I cook expensive food like lobster, scallops, swordfish, and rib eye. I eat at restaurants and drink premium alcoholic beverages. I've traveled the world. For me, all of that is far more important that dying with an enormous pile of money. I will be retiring in 8 years if I stay on plan. According to my personal finance spreadsheet, I will have adequate resources to maintain my lifestyle. You can't take it with you.
which is why these comparisons get silly . when we sold our house and decided to rent we didn't go and rent an equivalent house . we live in a nice 2 bedroom - 2 bathroom apartment in a development with pool and tennis court and it cost us less money then our home did since we have no other costs . but we are comparing a whole house to an apartment .
rarely is the human spending pattern considered when comparing .
in fact we owned a 2nd home in the pocono's . it was a 3,000 sq ft house . why ?
because unlike here , no one lives with us in the apartment but when the kids and grand kids come to pa every one stays over . so even buying in a low cost area that home still cost us more to maintain then our rent here in nyc .
so yeah by long island standards was dirt cheap but in our real life comparison it was not as cheap as our rent because the structures are different .
Owning a home is a lifestyle decision. I can't rent the at the quality level I have in my home. If my only goal in life was to optimize for my net worth, I'd live in the cheapest studio apartment I could find, drive a used econobox, and spend nothing other than essentials like self-prepared food and Walmart clothing. I'd invest the rest of my paycheck in the stock market.
If I'd done that, I'd have a net worth of many millions now. That is not the lifestyle choice I made. I own two homes. I have done extensive remodeling projects that would return barely 30 cents on the dollar if I had to sell my primary residence. The car I drive is 3x the ownership cost of a used econobox. I own a boat that eats 5% of my gross pay every year. I pour a lot of disposable income into skiing. I cook expensive food like lobster, scallops, swordfish, and rib eye. I eat at restaurants and drink premium alcoholic beverages. I've traveled the world. For me, all of that is far more important that dying with an enormous pile of money. I will be retiring in 8 years if I stay on plan. According to my personal finance spreadsheet, I will have adequate resources to maintain my lifestyle. You can't take it with you.
Hands down best post in this thread!
No, you can't take it with you, so either spend it on bettering yourself, or give it to those who truly have nothing, thus giving them a hand up so they can go on to live a better life.
Too many people are obsessed with acquisition to the point that they forget to LIVE life - however they feel led to do it!
I'm not proud of much in this life, but it pleases me, in retrospect, to realize that I did nothing 'just for the money.' There was never a dollar sign in front of anything creative that I've ever done, and knowing that brings me immense satisfaction.
If I were to die tomorrow, I'd die knowing that I did LIVE my life.
Shabbat Shalom,
Mahrie.
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