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I know someone who in 2009 bought a home for $600,000 and he put $400,000 down on it at the time and took out a mortgage for $200,000. The 400k represented most of his savings and the only other investments he had to his name were his 401k which had around 150k. He was 38 years old at the time. He still thinks that was the best decision as he had a mania of having a house paid off.
In retrospect I see that if he had invested the $400k in the market he would've tripled it by now to $1.2 million. His home is currently valued at $800k so it's gone up a bit but not as much as the market.
If you were in his shoes how would you do this differently?
I know someone who in 2009 bought a home for $600,000 and he put $400,000 down on it at the time and took out a mortgage for $200,000. The 400k represented most of his savings and the only other investments he had to his name were his 401k which had around 150k. He was 38 years old at the time. He still thinks that was the best decision as he had a mania of having a house paid off.
In retrospect I see that if he had invested the $400k in the market he would've tripled it by now to $1.2 million. His home is currently valued at $800k so it's gone up a bit but not as much as the market.
If you were in his shoes how would you do this differently?
I want to have as little money invested in personal real estate as possible. We own a home we are comfortable in, but bought it when we made less than half of what we make today. We have no plans to 'upgrade' as that would involve us putting even more money into personal real estate. Keep in mind you can really only use that additional equity in if you plan to sell the house in the future or if you take out a Heloc/refi, which would then leave you with a future payment.
I know someone who in 2009 bought a home for $600,000 and he put $400,000 down on it at the time and took out a mortgage for $200,000. The 400k represented most of his savings and the only other investments he had to his name were his 401k which had around 150k. He was 38 years old at the time. He still thinks that was the best decision as he had a mania of having a house paid off.
In retrospect I see that if he had invested the $400k in the market he would've tripled it by now to $1.2 million. His home is currently valued at $800k so it's gone up a bit but not as much as the market.
But you are not taking into account what the cost would have been for renting for the same period added in, how much would that have eaten up of the money he might have made in the market, and I want to accentuate might because not everyone who gets into the market makes double or triple in 8 years, what is the average, maybe 6 to 10% a year, so how does 80% or even 100% work out to triple and then be sure to add in taxes that have to be paid on investment if they are not held in a non taxable account, on a home there will be no cap gains taxes until it is sold and I believe that for a couple that $500,000 of profit is not taxable when the home is sold, please feel free to correct me if I am wrong?
So my opinion is that I have always made money on the property we lived in as well as commercial property we owned, property can be part of a portfolio.
I think he made a mistake throwing all his cash at a personal residence when interest rates were still very low (5%'ish for a 30 year in 2009). That being said I did invest in some real estate, rental properties, around that time and they have done better than the market (for my money). There were some very good areas to buy at very low prices at that time. If his property has only increased from $600k to $800k in that time then it was not one of the areas that was a 'hot buy'.
There are good times and bad times to get in/out of both. You may not be able to time it perfectly but you don't need to in order to get good returns. However, don't expect anything like 2009 to 2012 to happen again in our lifetime. It was not a typical real estate market at that time.
I know someone who in 2009 bought a home for $600,000 and he put $400,000 down on it at the time and took out a mortgage for $200,000. The 400k represented most of his savings and the only other investments he had to his name were his 401k which had around 150k. He was 38 years old at the time. He still thinks that was the best decision as he had a mania of having a house paid off.
In retrospect I see that if he had invested the $400k in the market he would've tripled it by now to $1.2 million. His home is currently valued at $800k so it's gone up a bit but not as much as the market.
If you were in his shoes how would you do this differently?
going back to 1987 when i started out my home was 169k . that home is worth 650k today .
not bad until once again you look at the same 169k in the fidelity insight growth model of plain ole fidelity funds which is more than 4 million today .
you could subtract out all the rent and taxes and buy multiple homes today .
on the other hand the commercial property we bought in manhattan by central park has returned much more than that in just 13 years .
so real estate is very location sensitive and your home you live in is very different than an investment property
There's an emotional component that you can't quantify. If this individual had a "mania" about paying off their mortgage, then what they did allowed them to sleep at night. All the charts, graphs or whatever aren't going to change the fact that this individual was not comfortable having debt.
In 2003 the company I worked for was nearly bankrupted due to an ill advised debt issue they issued when times were better. Leading up to the ultimate resolution of that, the company laid off over 80% of the employees (thankfully I wasn't one of them). My family was always worried about losing our house because we loved where we were living. So we put every $ we had into paying off that mortgage as quickly as we could, which we did in 2004, over 20 years ahead of schedule.
Had I put all that money in the market at that time, it would have done very nicely. But then my family wouldn't have been happy, which is worth a lot more. Fortunately I've been able to make some more money along the way, the lost investment gains from that time aren't a big deal.
I think about this one a lot. I am completely split on the consideration. We are mortgage-free and have watched the value of our condo nearly DOUBLE in the last 5 years. An increase of $350k added to our net worth (and yes, I include primary residence in my net worth.. if you include the mortgage in your liabilities then you should also include home equity in your assets).
Since our home is paid off and it's increased so much in value we are heavy in real estate. My intention is to diversify over the next five years in the markets. However.. we also want to add two additional properties to our portfolio. Local properties where we have the flexibility of using one or all as homes for ourselves or our sons when they become adults. Family wealth. The issue is that real estate in Seattle is HOT, HOT, HOT. We are clearly on our way to becoming of the most expensive markets in the country. My fear is if we wait too long we'll be priced out.
But we have long-term horizon, possibly longer than our lifetimes. I think we'll stick to the plan of diversifying our portfolio so that we are close to financially independent before we start taking on more expenses of rental property (mortgage, taxes, repairs).
In the end it's all about context. Your context, not mine.
2009 was hardly a typical time to invest in the stock market.
If he had done the same in 2000, the results would be reversed.
Depends. I sold my growth stocks during 1999-2000. Some of the money went into physical property, some went into REITs and other stocks that were not insanely expensive. The physical real estate was the laggard of those investments, and not by just a little bit.
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