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Some people never learn: Polls show that Americans still view their homes as the best and safest place to invest their hard-earned cash.
Gallup asked Americans this month to choose the best “long-term investment.” Real estate was the most common pick, ahead of mutual funds, bonds and other options. Similarly, Fannie Mae’s National Housing Survey asked Americans to assess whether various kinds of assets amounted to a “safe investment with a lot of potential.”
A house CAN be a great vehicle for retirement. But a few things must be done to achieve that. It takes some self restraint and determination. Some people think they can handle it and they place their primary residence in jeopardy in order to finance things that to them take priority over the safety and security of a home.
I just read a article that foreclosures are up again in So Cal. And that the Chinese are buying like crazy. At this time I would not be buying a house. I thought about it laughed a bit and decided to step away. Let the investors and the Chinese and the stretch to buy FHAs battle it out.
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The article has it mostly wrong. In fact, Americans have the right instinct that home ownership is the best financial decision they will ever make in their lives.
First of all, paying-off your mortgage is a guaranteed savings mechanism. Like it or not, every month you squirrel away several hundred dollars towards you house equity. Some people might have the willpower to invest their extra money in stocks and bonds, but most would probably blow it away on shiny trinkets. The social security contributions are mandatory for a reason, otherwise most workers would not pay them.
When your mortgage is paid off, you are left with an asset typically (if you bought a good house in good area) worth several hundred thousand dollars. You can get reverse mortgage, or sell and buy something smaller, or leave it to your children.
Second, you enjoy that asset while gradually acquiring it. Do your stocks and bonds certificates provide warmth, comfort, convenience and freedom the way a house does?
Third, assuming you have the fixed rate mortgage, your housing costs remain relatively stable from year to year, and from decade to decade, which cannot be said about rents. Also, if you rent, you can grow cozy in you your apartment, pay the rent faithfully for years, yet still the landlord can send you packing at anytime with 30 days notice.
Finally, owning a house gives you a stake in the society: your block, neighborhood, city and country. Unlike vagabond-like renters who have the tendency to flee at the first sign of trouble, home owners typically care about their community because they have a vital stake in it.
The mortgage-interest deduction encourages home ownership attitude, and was one of the best financial incentives ever created in the US.
Last edited by skiffrace; 04-22-2014 at 09:24 PM..
I personally think it depends on how you perceive your home. Is it a shelter, or is it an investment?
What the article forgets to mention, is that everyone needs a place to live- you are either going to sink your hard earned dollars into buying a house, or you're going to sink it into paying rent to a landlord (to pay off his mortgage or to help fatten his pockets). Either way, you're spending money each month for shelter. In my opinion, I'd rather it be my own shelter, than somebody else's.
Renting works for some people- and in some areas it is cheaper to rent than to buy (after you factor in the cost of maintenance, property tax, home owners insurance, mortgage if you have one, etc). However, you're always at the whim of the landlord. He/she may decide to sell the house and the prospective owners want to occupy the property. He/she may foreclose on the property. He/she may decide they just don't want to renew your lease again. That means you're footing the bill for upping and moving, whether you want to or not.
In our immediate area, buying worked out cheaper than renting- especially since we paid in cash without a mortgage (so don't have the interest that comes along with it). Even if we did have a standard mortgage on our home, it would all work out cheaper than renting after all is said and done.
I personally don't think of my house as an investment, I think of it as a home. It's a shelter that we can't be forced to leave (except in the case of a natural disaster, or some extenuating circumstance). It's a shelter that I'm not paying anybody else for. It's ours. If we do eventually decide to move to a bigger house / different neighborhood / whatever, it will be because we want to, not because we are at the mercy of the landlord.
One thing the article did get right, however, is that "Americans are buying more house than they need". I do believe this is true.
DH & I have known a lot of people to over-extend themselves when buying a house, all part of keeping up with the Joneses.
I believe that as long as you're sensible about what you can really afford, and what space you really need, then home ownership is still a wonderful thing, and just as good as the traditional American Dream has it cracked up to be. ♥
repeat after me children: single family homes are not investment vehicles.
PERIOD.
home prices don't actually appreciate over the long term (averaging only 0.3%). values are merely a function of unemployment, interest rates, etc. they're an atrocious return on investment.
at the end of the day, who wants to be tied up in an illiquid asset that generates zero cash, wasn't purpose-built to make money, has ongoing maintenence costs, large acquisition/transaction fees, etc? plus you have very few entry/exit points since you're at the mercy of the market. it's laughable.
in the long term, renting is a FAR better option if you didn't flunk out of economics 101.
i'd rather pay a tiny fraction of ownership costs out of pocket in rent, let someone else worry about fixing things, and invest my capital elsewhere and get a real return: in a business, stocks, commercial real estate, etc.
repeat after me children: single family homes are not investment vehicles. PERIOD. Single family homes are HOMES. It's not always about ROI. My home has always been an investment in my future.
home prices don't actually appreciate over the long term (averaging only 0.3%). values are merely a function of unemployment, interest rates, etc. they're an atrocious return on investment.
at the end of the day, who wants to be tied up in an illiquid asset that generates zero cash, wasn't purpose-built to make money, has ongoing maintenence costs, large acquisition/transaction fees, etc? plus you have very few entry/exit points since you're at the mercy of the market. it's laughable.
in the long term, renting is a FAR better option if you didn't flunk out of economics 101. If I had rented all these years, I wouldn't have paid off my home and I wouldn't be able to live rent-free/mortgage-free now, in my retirement years. In other words, I wouldn't be able to afford to retire. I don't see where a lifetime of renting is better. .
i'd rather pay a tiny fraction of ownership costs out of pocket in rent, Huh? How is rent a tiny fraction of ownership costs? What are you saying? Your rent payments are paying off someone else's mortgage. You're giving your landlord a great ROI.
let someone else worry about fixing things, and invest my capital elsewhere and get a real return: in a business, stocks, commercial real estate, etc. Most of us lost a big chunk of our investments in recent years. My house is still standing. I still have a place to live. That is the best investment of all!
I didn't flunk Economics 101 - actually can't remember much about it LOL. But I remember my English punctuation. Sentences start with capital letters.
That Wash Post article was an opinion piece... one person's thoughts.
Yes, homes are great long term investments. Short term? Sometimes yes, sometimes no. But land will always increase in value over time -- compare homes every, say, twenty years... I'm sure you'll find they were always more expensive in the later time.
But if people never sell their home, they're missing out, and I get that -- because most people don't buy their forever home to sell it when they retire.
When it comes to investment, owning a rental is always best. You have cash flow every month, and you can very well pay off that mortgage before retirement and just have the rental income act as a paycheck.
Having lived in a rental my whole life, I don't get why people think it's so glamorous. It's not. This is why I'm working towards home ownership, because in the end, it will pay off.
ghettoivory: I think you need to hit up your calculator again! I'm not sure where in the U.S. you are located, but in a lot of areas throughout this country, home ownership is considerably cheaper in the long term than renting all of your life. You're not just paying a tiny fraction of home ownership costs out of pocket to rent, you're paying a lot.
Take my hubby and I's situation for instance. If we stay in this house (for argument's sake) until we die, say another 45 years (I'm 30 right now), assuming that there was no inflation for renters or home owners (because I can't be bothered working out the additional percentages) we will spend, including the cost of our house (which is mortgage free, and in an affordable housing market), property tax and insurance:
$210,000 over 45 years.
Add to that the cost to replace the Vinyl Siding (assuming we did it 3 times over 45 years, again without inflation)- $21,000 (the house is only half siding half brick veneer), two new furnaces in that time- $8000, and say miscellaneous repairs and necessary updates over the years come to another $150,000. That brings us to a total of $389,000 spent on home ownership over 45 years.
If we were to rent an almost identical house in our subdivision, the current 'going rate' is $1300 / month. Without inflation, if we rented for the next 45 years, that's $702,000 down the pan. We wouldn't have the house to pass onto our children for them to sell / live in / do as they wish, and our bank balance would be significantly less because of all that money we wasted by renting over the years.
You have to pay utilities (water, gas, electric) regardless, whether you rent or own, and usually when you rent a SFH you're responsible for lawn care / yard care as well, so these things make zero difference.
Additionally, while I didn't factor inflation into these numbers, think about the fact that on average, a rental property in the U.S. increases rent by 3.9% per year, whereas property tax is usually capped at a 1% increase per year (whether it goes up or down is more dependent on the value of the house and land). Even home owners insurance, when it rises, will never cost as much as rent.
This is not to knock people who choose to rent AT ALL. I realize that for some, renting works out far better because it is far less emotional hassle (something breaks, call the landlord, need to move across country, no need to go through the process to sell your house, etc). However, as I stipulated in my original post, you're also at the mercy of the landlord. He might decide his brother needs to move into your house, or he might decide to sell, or the neighbors might be complaining so much about you that the property management won't renew your lease, and then you're spending $$$ on packing up and moving, and have the hassle of finding a new house, whether the timing suits you or not.
Yes, there are benefits to renting, and there are benefits to owning. Financial benefits (if you stop thinking about your house as an investment, and think about it as a shelter) are usually greater when you own your own house, at least in a lot of the areas throughout the U.S.
ghettoivory: I think you need to hit up your calculator again! I'm not sure where in the U.S. you are located, but in a lot of areas throughout this country, home ownership is considerably cheaper in the long term than renting all of your life. You're not just paying a tiny fraction of home ownership costs out of pocket to rent, you're paying a lot.
Take my hubby and I's situation for instance. If we stay in this house (for argument's sake) until we die, say another 45 years (I'm 30 right now), assuming that there was no inflation for renters or home owners (because I can't be bothered working out the additional percentages) we will spend, including the cost of our house (which is mortgage free, and in an affordable housing market), property tax and insurance:
$210,000 over 45 years.
Add to that the cost to replace the Vinyl Siding (assuming we did it 3 times over 45 years, again without inflation)- $21,000 (the house is only half siding half brick veneer), two new furnaces in that time- $8000, and say miscellaneous repairs and necessary updates over the years come to another $150,000. That brings us to a total of $389,000 spent on home ownership over 45 years.
If we were to rent an almost identical house in our subdivision, the current 'going rate' is $1300 / month. Without inflation, if we rented for the next 45 years, that's $702,000 down the pan. We wouldn't have the house to pass onto our children for them to sell / live in / do as they wish, and our bank balance would be significantly less because of all that money we wasted by renting over the years.
You have to pay utilities (water, gas, electric) regardless, whether you rent or own, and usually when you rent a SFH you're responsible for lawn care / yard care as well, so these things make zero difference.
Additionally, while I didn't factor inflation into these numbers, think about the fact that on average, a rental property in the U.S. increases rent by 3.9% per year, whereas property tax is usually capped at a 1% increase per year (whether it goes up or down is more dependent on the value of the house and land). Even home owners insurance, when it rises, will never cost as much as rent.
This is not to knock people who choose to rent AT ALL. I realize that for some, renting works out far better because it is far less emotional hassle (something breaks, call the landlord, need to move across country, no need to go through the process to sell your house, etc). However, as I stipulated in my original post, you're also at the mercy of the landlord. He might decide his brother needs to move into your house, or he might decide to sell, or the neighbors might be complaining so much about you that the property management won't renew your lease, and then you're spending $$$ on packing up and moving, and have the hassle of finding a new house, whether the timing suits you or not.
Yes, there are benefits to renting, and there are benefits to owning. Financial benefits (if you stop thinking about your house as an investment, and think about it as a shelter) are usually greater when you own your own house, at least in a lot of the areas throughout the U.S.
glam, I think you provided a well reasoned response. For the record, I don't think ghettoivory was being serious as his post was so over-the-top wrong that I think he was just poking fun at people who claim renting is better. I do think renting is better for some but nobody would use the arguments that ghettoivory did as they were just too silly.
As for the original post, it was just one person's opinion. Not a news item. Not a exhaustive peer reviewed study. Just an opinion. One thing the crash of 2007-2008 did was provide a sales bonanza from 2009-2012 but a lot of people were too afraid to buy. Anyone that bought in that period is probably quite happy now. Believe me, there were just as many opinion pieces then on how bad an investment real estate was, that it still had further to drop, etc.
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Quote:
Originally Posted by glamatomic
If we were to rent an almost identical house in our subdivision, the current 'going rate' is $1300 / month. Without inflation, if we rented for the next 45 years, that's $702,000 down the pan. We wouldn't have the house to pass onto our children for them to sell / live in / do as they wish, and our bank balance would be significantly less because of all that money we wasted by renting over the years.
...
Additionally, while I didn't factor inflation into these numbers, think about the fact that on average, a rental property in the U.S. increases rent by 3.9% per year, whereas property tax is usually capped at a 1% increase per year (whether it goes up or down is more dependent on the value of the house and land). Even home owners insurance, when it rises, will never cost as much as rent.
Good post.
I will fill in the gap regarding the average %3.9 annual rent increases.
With the monthly rent payment of $1,300 , which amounts to annual rent payment of $15,600,
and the annual rent increase of %3.9,
the total value of rent payments over 45 years is....
[drum-roll please]...
....
....
$1,837,482.42
For those of you not averse to math, here is the FV formula used by OpenOffice spreadsheet (Excel FV formula is very similar):
FV(rate; numperiods; payment; presentvalue; type)
when we plug-in our numbers, we get
=FV (0.039; 45; -15600; 0; 0)
It can be tweaked slightly, with only minor changes to the final number.
Last edited by skiffrace; 04-23-2014 at 08:49 AM..
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