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Wife and I rented for years in North Jersey while she worked in NYC. We lived a basic life, didn't travel much, 1 vacation a year, ate out maybe once every other week. We weren't living paycheck to paycheck, but our retirement fund was a joke and our savings hardly ever increased. We got fed up with our money going no where up there so we saved for years and with our wedding money put 10% down on a house in south jersey. 2 years later the equity in our home is now 4 times the original down payment giving us 6 figure equity. The house is cheaper than rent was so we're also maxing out ROTH ira.
I know theres an ongoing argument on renting vs buying.. I still say buying beats renting in the long run unless you had a grand slam investment that covers your increasing rent over the years. Either way for us owning a home has been the best financial move we could have made. Plus, being in jersey our home is worth around $500k when we retire and sell the home we can move to a cheaper state buying a smaller home for $150k and the other $350k can be used toward retirement savings.
We bought a house in 1971 NY in a very desirable area close to Manhattan. We paid $70,000 at that time. Over the 40 years we lived there, the area became very upscale and wealthy. Best schools, taxes enormous.
We were paying over $24,000 a year in property/school taxes.
We replaced the roof three times, new furnaces, AC, kitchen, etc.
We sold the house for about 1M.
But we had mortgages, lines of credit over the years and I would not be able to say we made a lot of money off that house.
Yes we paid $70,000 and sold for 1M but do you factor in all the costs of home ownership?
We bought a house in 1971 NY in a very desirable area close to Manhattan. We paid $70,000 at that time. Over the 40 years we lived there, the area became very upscale and wealthy. Best schools, taxes enormous.
We were paying over $24,000 a year in property/school taxes.
We replaced the roof three times, new furnaces, AC, kitchen, etc.
We sold the house for about 1M.
But we had mortgages, lines of credit over the years and I would not be able to say we made a lot of money off that house.
Yes we paid $70,000 and sold for 1M but do you factor in all the costs of home ownership?
You always need a roof over your head.. The $24k in taxes would have been deductible. Any idea what places rent for in NY that cost $1M? You might have paid $600,000 in rent over the last 10 years, $400,000 the 10 years before that, $200,000 the 10 years before that, and $50,000 the 10 before that for a total of $1,250,000 and you'd have nothing to show for it.
If you had mortgages and lines of credit that wasn't the purchase of the houses' fault that was you spending the money on other items and using the house as a piggy bank.
My parents bought there house in the 80s for $75k, today its worth about $300k and paid off. 1 roof, 1 A/C, and my dad did the kitchen over himself on a budget and also did the basement. To rent a place like that they'd be blowing through $2,000 a month for the next 25 years of retirement ($600,000 not figuring increasing rent prices)... Instead their taxes and insurance is maybe $500 a month ($150,000 over 25 years).. Buying their home put them so far ahead later in life its amazing
But here's an extreme example to counter your point:
My next door neighbor bought his house in 1976 for $28K. It's broken apart and is pretty much uninhabitable, but he just sold it for $770K and is allowed to stay there for 4 months rent-free. He's a retired self-employed machinist who never earned more than $60K in a given year, but he's sitting on $1M largely because of his homeownership. I have no idea how much money he's poured into the house over the decades, but the fact that it's falling apart tells me he didn't spend much. I don't think his stock portfolio saw the same 2,650% return that his house saw.
You're right, that's an extreme example. It happens of course. He got about 8.5% appreciation per year. The Case Shiller 10-city average shows about 4% annualized appreciation over the past 30 years.
As pointed out already the S&P 500 has returned far more than that, but of course a person can't live in the S&P500.
Bottom line, it's a bad idea to count on one's house as the primary retirement asset. On average, taxes, insurance, and maintenance probably eat up 4% a year, which offsets that average 4% inflation.
You're right, that's an extreme example. It happens of course. He got about 8.5% appreciation per year. The Case Shiller 10-city average shows about 4% annualized appreciation over the past 30 years.
As pointed out already the S&P 500 has returned far more than that, but of course a person can't live in the S&P500.
Bottom line, it's a bad idea to count on one's house as the primary retirement asset. On average, taxes, insurance, and maintenance probably eat up 4% a year, which offsets that average 4% inflation.
Exactly. Prestigious areas of CA have no bearing to what happens in most of the country.
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