4 ms·

And sometimes the stock market crashes and takes everything with it. See: every ten years. At least with a house, even if the value goes down, you still have

And sometimes the stock market crashes and takes everything with it. See: every ten years. At least with a house, even if the value goes down, you still have a home.

kspaans 11y ago
You say "stock market crashes", I say "dividend yields go way up!". The losses are usually paper losses (hello tax-loss harvesting!), which don't bother long-term investors (whether they are home owners or stock investors). (I don't think you can tax-loss harvest a home though...)
- deegles 11y ago
  Only after you own enough homes to create a publicly traded REIT :)
drudru11 11y ago
... If you can still swing the mortgage
refurb 11y ago
True, but what is more risky? Having most of your money in a single, non-liquid asset with a very local market or having most of your money in a diversified, liquid asset? I'm not saying owning a home is a bad idea, just having 80%+ of your money in it.
- Domenic_S 11y ago
  Diversification can include real estate. Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down. Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.
  - scurvy 11y ago
    Where can you buy with 2.5% down? Those days are long gone. Skin in the game and all that.
    - heywire 11y ago
      Not 2.5%, but close, FHA still allows 3.5% down.. but then you're talking MIP and such
      - Domenic_S 11y ago
        Yep, I was talking about FHA but misremembered the %. Still crazy low. MI sucks but hey, 3.5%.
  - refurb 11y ago
    You are correct, but with leverage comes risk. Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city). Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc. Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it. In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.
    - Domenic_S 11y ago
      PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo. Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
    - kspaans 11y ago
- scrumper 11y ago
  Owning $300k of stocks is better than owning a single $300k property for the reason you give. The question becomes a lot fuzzier when you overlay your own need for housing on top of it. What I mean is, if I had $300k cash in the bank and I was renting an apartment I enjoyed, I'd be smarter to invest the $300k in a diversified portfolio than spend all of it on a single rental house and playing landlord. Equally if I had $300k cash and nowhere to live, I might very well be better off buying a house than renting a home and buying the portfolio. A vast amount depends on individual circumstances and stage of life.
  - refurb 11y ago
    I don't disagree. I'm certainly not anti-owning a home, but it's much more risky than people think it is. This is despite all the people who witnessed the 2008 crash. I see people stretch themselves with a mortgage, dumping every dollar they have in order to make up the down payment. A single-asset investment philosophy. Why do they do it? The only answer I can imagine is that risk of their home going down in value is low. I disagree the risk is that low.
mywittyname 11y ago
Everything? When was the last time the stock market went to zero? Every market crash in the US has been follow by a even bigger boom.

And sometimes the stock market crashes and takes everything with it. See: every ten years. At least with a house, even if the value goes down, you still have a home.

kspaans 11y ago

You say "stock market crashes", I say "dividend yields go way up!". The losses are usually paper losses (hello tax-loss harvesting!), which don't bother long-term investors (whether they are home owners or stock investors). (I don't think you can tax-loss harvest a home though...)

deegles 11y ago
Only after you own enough homes to create a publicly traded REIT :)

drudru11 11y ago

... If you can still swing the mortgage

refurb 11y ago

True, but what is more risky? Having most of your money in a single, non-liquid asset with a very local market or having most of your money in a diversified, liquid asset? I'm not saying owning a home is a bad idea, just having 80%+ of your money in it.

Domenic_S 11y ago
Diversification can include real estate. Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down. Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.
- scurvy 11y ago
  Where can you buy with 2.5% down? Those days are long gone. Skin in the game and all that.
  - heywire 11y ago
    Not 2.5%, but close, FHA still allows 3.5% down.. but then you're talking MIP and such
    - Domenic_S 11y ago
      Yep, I was talking about FHA but misremembered the %. Still crazy low. MI sucks but hey, 3.5%.
- refurb 11y ago
  You are correct, but with leverage comes risk. Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city). Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc. Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it. In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.
  - Domenic_S 11y ago
    PMI is mortgage insurance, which you do not have to pay with 20% down. You may have meant PITI (principle, interest, taxes & insurance) which for that example situation would be about $4500/mo. Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
  - kspaans 11y ago
scrumper 11y ago
Owning $300k of stocks is better than owning a single $300k property for the reason you give. The question becomes a lot fuzzier when you overlay your own need for housing on top of it. What I mean is, if I had $300k cash in the bank and I was renting an apartment I enjoyed, I'd be smarter to invest the $300k in a diversified portfolio than spend all of it on a single rental house and playing landlord. Equally if I had $300k cash and nowhere to live, I might very well be better off buying a house than renting a home and buying the portfolio. A vast amount depends on individual circumstances and stage of life.
- refurb 11y ago
  I don't disagree. I'm certainly not anti-owning a home, but it's much more risky than people think it is. This is despite all the people who witnessed the 2008 crash. I see people stretch themselves with a mortgage, dumping every dollar they have in order to make up the down payment. A single-asset investment philosophy. Why do they do it? The only answer I can imagine is that risk of their home going down in value is low. I disagree the risk is that low.

mywittyname 11y ago

Everything? When was the last time the stock market went to zero? Every market crash in the US has been follow by a even bigger boom.