5 ms·

For most people your house is one of your largest investments .

lazaroclapp 10y ago
Largest, sure, but not most effective. A house is for most people primarily a purchase they intend to use (live in), with the added benefit that over the long term is likely one of their few material possessions that will appreciate instead of depreciate. Granted, even if the 1.5M house falls by 30% this year, over decades it is likely it will still come out ahead, adjusted for inflation, compared to say, a savings account. But chances are, on average, it won't beat an index fund.
- deleted 10y ago
  [deleted]
rtpg 10y ago
It's an investment in the sense that you have to spend a lot of money/get a huge loan upfront. But many people also see it as a way to make money. Unlike basically everything else we buy for living, people think that the only direction the value of their house can go is up. If you look at it like your car (it costs money, but maybe you'll get some money back), then you can't be disappointed. In the worst case, it's no different from paying rent. Plus, unlike penny stocks, you can live in the house. The obvious protip here: don't buy a second house unless you can afford losing money on it.
WalterBright 10y ago
Once you factor in mortgage interest payments, taxes, maintenance, inflation, real estate commissions, your time, and the time it sits vacant while you try to sell it, it's usually a lousy investment. Much better off investing in the S&P 500.
- smsm42 10y ago
  You can't live in S&P 500 ;) Also, when you factor this in - the landlord also knows how to factor those in. So rental prices won't be far behind. There are a lot of factors in renting vs. owning, but it's not clear-cut either side - you need to always look to specific local prices.
  - seanmcdirmid 10y ago
    You can always tell if a market is insane if rent/sale ratio becomes too low. There are many markets where renting makes perfect financial sense.
  - WalterBright 10y ago
    > You can't live in S&P 500 Getting a place to live is quite different from getting one as an investment. > the landlord also knows how to factor those in Rents are determined by supply & demand. They are not determined by whatever the landlord pleases to charge any more than whatever the renter pleases to pay.
    - smsm42 10y ago
      > Getting a place to live is quite different from getting one as an investment. Not really. You need a place to live anyway, so why not get one that can also would appreciate in value? Alternatively, getting one that would depreciate can be financially ruinous. So investment consideration is always there, even if they might not be always the primary one. > Rents are determined by supply & demand. That's a platitude. But you are thinking of "supply and demand" to narrowly - nobody would purchase a rental property that brings in less money than it takes out, whatever demand is around. There's a price floor for rental price, and that's how much it costs to the owner to get and maintain the property. Short-term, the price can drop below it since selling house takes time, and the market may be not good. Long-term, nobody would keep such asset. People don't do it for fun, they do it for money. If selling is more profitable, they'd do that.
- bk_geek 10y ago
  Home price appreciation depends on location, so it's hard to generalize. Also unlike stock investments, a mortgage gives you massive leverage.
  - lewisl9029 10y ago
    The massive leverage is precisely why I would never buy a house on a mortgage. With the 10x+ leverage most mortgages give you these days, it's absolutely terrifying how quickly you can accumulate losses of multiple times your principal. Definitely not what I'm looking for in a long term investment.
    - bk_geek 10y ago
      Not saying it's risk free, but smart real estate investments can crush stock market returns precisely due to that massive leverage
      - lewisl9029 10y ago
        Yes absolutely. Everybody has a different appetite for risk. If you understand the risks involved and can tolerate the downside potential, a 10x+ leveraged mortgage has the potential to be one of the most lucrative investments opportunities available, due to the massive leverage it offers at dirt cheap interest rates. What I'm fearful about is that the large majority of mortgage buyers don't see it as a 10x leveraged investment, nor do they understand how badly the amplified price fluctuations of a 10x leveraged investment could hit them if there was even a tiny dip in the price of their homes, let alone another housing crisis like 2007.

Largest, sure, but not most effective. A house is for most people primarily a purchase they intend to use (live in), with the added benefit that over the long term is likely one of their few material possessions that will appreciate instead of depreciate. Granted, even if the 1.5M house falls by 30% this year, over decades it is likely it will still come out ahead, adjusted for inflation, compared to say, a savings account. But chances are, on average, it won't beat an index fund.

deleted 10y ago
[deleted]

rtpg 10y ago

It's an investment in the sense that you have to spend a lot of money/get a huge loan upfront. But many people also see it as a way to make money. Unlike basically everything else we buy for living, people think that the only direction the value of their house can go is up. If you look at it like your car (it costs money, but maybe you'll get some money back), then you can't be disappointed. In the worst case, it's no different from paying rent. Plus, unlike penny stocks, you can live in the house. The obvious protip here: don't buy a second house unless you can afford losing money on it.

WalterBright 10y ago

Once you factor in mortgage interest payments, taxes, maintenance, inflation, real estate commissions, your time, and the time it sits vacant while you try to sell it, it's usually a lousy investment. Much better off investing in the S&P 500.

smsm42 10y ago
You can't live in S&P 500 ;) Also, when you factor this in - the landlord also knows how to factor those in. So rental prices won't be far behind. There are a lot of factors in renting vs. owning, but it's not clear-cut either side - you need to always look to specific local prices.
- seanmcdirmid 10y ago
  You can always tell if a market is insane if rent/sale ratio becomes too low. There are many markets where renting makes perfect financial sense.
- WalterBright 10y ago
  > You can't live in S&P 500 Getting a place to live is quite different from getting one as an investment. > the landlord also knows how to factor those in Rents are determined by supply & demand. They are not determined by whatever the landlord pleases to charge any more than whatever the renter pleases to pay.
  - smsm42 10y ago
    > Getting a place to live is quite different from getting one as an investment. Not really. You need a place to live anyway, so why not get one that can also would appreciate in value? Alternatively, getting one that would depreciate can be financially ruinous. So investment consideration is always there, even if they might not be always the primary one. > Rents are determined by supply & demand. That's a platitude. But you are thinking of "supply and demand" to narrowly - nobody would purchase a rental property that brings in less money than it takes out, whatever demand is around. There's a price floor for rental price, and that's how much it costs to the owner to get and maintain the property. Short-term, the price can drop below it since selling house takes time, and the market may be not good. Long-term, nobody would keep such asset. People don't do it for fun, they do it for money. If selling is more profitable, they'd do that.
bk_geek 10y ago
Home price appreciation depends on location, so it's hard to generalize. Also unlike stock investments, a mortgage gives you massive leverage.
- lewisl9029 10y ago
  The massive leverage is precisely why I would never buy a house on a mortgage. With the 10x+ leverage most mortgages give you these days, it's absolutely terrifying how quickly you can accumulate losses of multiple times your principal. Definitely not what I'm looking for in a long term investment.
  - bk_geek 10y ago
    Not saying it's risk free, but smart real estate investments can crush stock market returns precisely due to that massive leverage
    - lewisl9029 10y ago
      Yes absolutely. Everybody has a different appetite for risk. If you understand the risks involved and can tolerate the downside potential, a 10x+ leveraged mortgage has the potential to be one of the most lucrative investments opportunities available, due to the massive leverage it offers at dirt cheap interest rates. What I'm fearful about is that the large majority of mortgage buyers don't see it as a 10x leveraged investment, nor do they understand how badly the amplified price fluctuations of a 10x leveraged investment could hit them if there was even a tiny dip in the price of their homes, let alone another housing crisis like 2007.