5 ms·

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be t

by 013a 9y ago

I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. Even if your house breaks even over 10 years, you still got to live in it for ten years for what is, functionally, the cost of interest + upkeep, which would often easily amount to less than rent. If I stayed where I rented last year for ten years, the total cost over ten years (assuming the rent is never increased) (rent is always increased) is $132,0000. Even if my house cost that much to maintain over ten years plus interest (it won't), I'll still break even on the principal and enjoy the benefits of home ownership. That's not to say that home ownership is always the right choice for everyone in every stage of life. But to sweep a broad generality like "houses are a terrible investment"...

sjm-lbm 9y ago
All of these analyses also ignore the fact that most people generally want to have some parts of their lives where they aren't working, and people still want a place to live even then. My parents may have made (by the article's standards) "bad investments" for 40 years, but after rolling steadily increasing amounts of equity into a few different houses, they own the place they live outright. Even if they could have done better with stocks, the peace of mind to only have to pay property taxes and upkeep on a house is something that has substantial value in retirement.
mdorazio 9y ago
> which would often easily amount to less than rent. Hang on a minute there. Big citation needed, or caveat for which locality you're talking about. In LA or SF, for example, the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment. And that's after the huge assumption that you can even afford the up-front cost needed to buy a house in the first place.
- smallnamespace 9y ago
  > the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment Yes, but rental prices also change over time, whereas your mortgage payment doesn't (although the tax deduction falls over time, and your locality may up your property taxes, but these are fairly minor components). If you have reason to believe that rent will continue to increase (either around CPI, or in the case of the Bay Area, 10%+ per annum...), then by all means buying a house now (which produces an infinite stream of rents) allows you to profit off that view. Another way to view this is that you are acquiring an rental inflation-indexed asset and a nominal liability, so you will profit if inflation is high enough.
  - dawhizkid 9y ago
    ~72% of rentals in SF are rent-controlled units (capped increase at < 3%/year) As someone who doesn't plan to indefinitely stay in the Bay Area, I'm very happy renting a rent-controlled unit. https://www.quora.com/What-percentage-of-San-Francisco-apartments-are-under-rent-control https://www.quora.com/What-percentage-of-San-Francisco-apart...
- deleted 9y ago
  [deleted]
azernik 9y ago
Yeah, I think a frame that people don't use often enough when talking about homeownership is as a hedge against rising housing prices. As a person who needs somewhere to live, you already have a short position in the market whether you like it or not.
- AstralStorm 9y ago
  Indeed. Though this only applies if you actually live in the house. Rental is a way to hedge the short into long position for investors in homes and apartments. The renter instead is probably in long position on house prices add they likely want their own house - if they don't, they are subject to many market risks, including some existential ones.
jameshart 9y ago
I find myself wondering what, with a similar approach to analysis, would ever qualify as a good investment. Certainly stocks are out, given their volatility, the individual investor's inability to ever compete with professionals, the brokerage fees, and the taxation of any gains you make. Owning your own small business? Goodness, you have taxes, expenses, and the continual risk of losing everything if you become sick or market conditions change. 401K? Subject to government regulation that could change at any time; you're restricted in how much you can invest and how and when you can withdraw. That sounds terrible, too. What's left? Bitcoin?
- smt88 9y ago
  There is some unfortunate truth in the idea that individual, non-wealthy investors have very few opportunities for great investments
- asfasgasg 9y ago
  Stocks lack most of the weaknesses listed in the article. Point by point . . . - Not an ongoing drain on cash. - Liquid. - Cheap to buy and sell. - Simple to buy and sell. - Have historically generated high returns. (Although see my earlier comment for questions about whether this truly distinguishes stocks from housing.) - Normally not leveraged. - Normally not mortgaged. - Often productive (dividends). - Mobile. You can sell it to anyone in the world. - Many large corporations are multi-national, and certainly immune to any event that would occur at a neighborhood level. - Do not discourage you from moving to seek better opportunities. - Stocks can be pretty cheap. Shares of good ETFs are in reach of anyone. - Require no ongoing maintenance. - Relatively immune to local or even global weather. - Generally tax efficient, especially if held in a retirement account. - Not subject to eminent domain. What about this analysis makes you think that stocks fare poorly in it?
  - AstralStorm 9y ago
    How totally incorrect. Stocks are typically highly leveraged by big investors. Otherwise the gains are highly limited. Large bigcorps ate also vulnerable to market downturns and can fail. This has been shown in the recent lending crisis and car manufacturer problems. Stock require maintenance as in you have to watch the prices and the general condition of the market at the very least or you stand to lose a lot of money. Stocks are not even immune to power outages. (E.g. one at certain flash manufacturing plant of Samsung) Media are less predictable than weather and affect stock prices a lot. Main factor in prices of mortgages is supply of houses and interest rates which are relatively predictable. Stocks are taxed at capital gains tax level when you sell them like everything else. Whole you can technically sell stocks to anyone, not anyone will want to buy your stocks anyway or will buy it for a massive discount. The remaining point about not moving is moot when you have a family. Want to move yearly with a kid or two in tow? Good luck! And then you also presume there are always better opportunities to move to. This might be true in a score of professions but not most of them.
smnrchrds 9y ago
> I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. This would only make sense if you want to live in a place indefinitely. When the economy here (Alberta, Canada) tanked due to falling oil prices, people who were renting and were laid off simply gave their 1-2 month notice to their landlord and moved to Montreal or Southern Ontario for better employment opportunities. Those who owned could not do that without taking a huge loss, selling their house for less than the price they bought it for, potentially less than the remaining mortgage obligation, potentially leading to their bankruptcy. As for renting it out? Forget about finding a tenant in that economy. And even if they did, how could they manage a property from the other side of the country? Mobility is worth more than zero. If you think the economy in the place you are living is going to be good for the rest of your life (or at least the rest of your mortgage term) and you are certain you would not want to move during this time, go ahead and buy a place. Otherwise, it makes sense to rent.
- hrktb 9y ago
  To chime in, being able to move to smaller or bigger places depending on your family needs, or closer/farther from big cities depending on your priorities of the moment are huge advantages.
- FLUX-YOU 9y ago
  Towns that depend on one or a few employers have been a losing bet for home ownership. This has been learned multiple times already. It seems good if you get out before it goes bust, but that's like catching a falling knife (especially if the company is not forthright about its impending doom).
  - smnrchrds 9y ago
    It was not that there was one or few employers. There were many companies, large and small, operating in Calgary, Edmonton, and the rest of Alberta. The problem was that the lion's share of the economy was directly or indirectly related to a single industry: oil and gas. When the price of oil went down, they all suffered. I think the majority opinion on HN is that unlike other industries like energy, auto manufacturing, agriculture, etc., tech is uniquely immune to downturns. My impression is that most people on HN believe that the tech scene in California is only ever going to get bigger and more lucrative, and with it property prices are always going to go up. Even suggesting that tech and SF bay area might end up like, say Detroit and auto manufacturing industry, would make many to dismiss your point entirely. But as an outsider who does not have a horse in this race, I don't share the same mindset. Only time will tell the truth. But I won't be surprised if the sustained tech boom goes bust at some point during the next half century.
base 9y ago
Those $132.000 could into another investment like the SP500 and you could get 2.6x times the investment over a 10 years period (average return of 10% with dividends). This would pay the rent + provide you a return. I don't agree with all the points of the author as there are many factors to have into account when making the best financial decision. But rent can't be just seen as a negative investment, it's a cost that makes a person free to move their money into investments that provide a better return.

by 013a 9y ago

sjm-lbm 9y ago

All of these analyses also ignore the fact that most people generally want to have some parts of their lives where they aren't working, and people still want a place to live even then. My parents may have made (by the article's standards) "bad investments" for 40 years, but after rolling steadily increasing amounts of equity into a few different houses, they own the place they live outright. Even if they could have done better with stocks, the peace of mind to only have to pay property taxes and upkeep on a house is something that has substantial value in retirement.

mdorazio 9y ago

> which would often easily amount to less than rent. Hang on a minute there. Big citation needed, or caveat for which locality you're talking about. In LA or SF, for example, the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment. And that's after the huge assumption that you can even afford the up-front cost needed to buy a house in the first place.

smallnamespace 9y ago
> the interest + property tax + upkeep + HOA fees + closing costs + etc. very often run significantly more than rent on an apartment Yes, but rental prices also change over time, whereas your mortgage payment doesn't (although the tax deduction falls over time, and your locality may up your property taxes, but these are fairly minor components). If you have reason to believe that rent will continue to increase (either around CPI, or in the case of the Bay Area, 10%+ per annum...), then by all means buying a house now (which produces an infinite stream of rents) allows you to profit off that view. Another way to view this is that you are acquiring an rental inflation-indexed asset and a nominal liability, so you will profit if inflation is high enough.
- dawhizkid 9y ago
  ~72% of rentals in SF are rent-controlled units (capped increase at < 3%/year) As someone who doesn't plan to indefinitely stay in the Bay Area, I'm very happy renting a rent-controlled unit. https://www.quora.com/What-percentage-of-San-Francisco-apartments-are-under-rent-control https://www.quora.com/What-percentage-of-San-Francisco-apart...
deleted 9y ago
[deleted]

azernik 9y ago

Yeah, I think a frame that people don't use often enough when talking about homeownership is as a hedge against rising housing prices. As a person who needs somewhere to live, you already have a short position in the market whether you like it or not.

AstralStorm 9y ago
Indeed. Though this only applies if you actually live in the house. Rental is a way to hedge the short into long position for investors in homes and apartments. The renter instead is probably in long position on house prices add they likely want their own house - if they don't, they are subject to many market risks, including some existential ones.

jameshart 9y ago

I find myself wondering what, with a similar approach to analysis, would ever qualify as a good investment. Certainly stocks are out, given their volatility, the individual investor's inability to ever compete with professionals, the brokerage fees, and the taxation of any gains you make. Owning your own small business? Goodness, you have taxes, expenses, and the continual risk of losing everything if you become sick or market conditions change. 401K? Subject to government regulation that could change at any time; you're restricted in how much you can invest and how and when you can withdraw. That sounds terrible, too. What's left? Bitcoin?

smt88 9y ago
There is some unfortunate truth in the idea that individual, non-wealthy investors have very few opportunities for great investments
asfasgasg 9y ago
Stocks lack most of the weaknesses listed in the article. Point by point . . . - Not an ongoing drain on cash. - Liquid. - Cheap to buy and sell. - Simple to buy and sell. - Have historically generated high returns. (Although see my earlier comment for questions about whether this truly distinguishes stocks from housing.) - Normally not leveraged. - Normally not mortgaged. - Often productive (dividends). - Mobile. You can sell it to anyone in the world. - Many large corporations are multi-national, and certainly immune to any event that would occur at a neighborhood level. - Do not discourage you from moving to seek better opportunities. - Stocks can be pretty cheap. Shares of good ETFs are in reach of anyone. - Require no ongoing maintenance. - Relatively immune to local or even global weather. - Generally tax efficient, especially if held in a retirement account. - Not subject to eminent domain. What about this analysis makes you think that stocks fare poorly in it?
- AstralStorm 9y ago
  How totally incorrect. Stocks are typically highly leveraged by big investors. Otherwise the gains are highly limited. Large bigcorps ate also vulnerable to market downturns and can fail. This has been shown in the recent lending crisis and car manufacturer problems. Stock require maintenance as in you have to watch the prices and the general condition of the market at the very least or you stand to lose a lot of money. Stocks are not even immune to power outages. (E.g. one at certain flash manufacturing plant of Samsung) Media are less predictable than weather and affect stock prices a lot. Main factor in prices of mortgages is supply of houses and interest rates which are relatively predictable. Stocks are taxed at capital gains tax level when you sell them like everything else. Whole you can technically sell stocks to anyone, not anyone will want to buy your stocks anyway or will buy it for a massive discount. The remaining point about not moving is moot when you have a family. Want to move yearly with a kid or two in tow? Good luck! And then you also presume there are always better opportunities to move to. This might be true in a score of professions but not most of them.

smnrchrds 9y ago

> I really fail to see how most of those points are relevant when you consider that a home is an investment you can, you know, live in. The alternative would be to rent indefinitely, which apparently we're ok with even though its not just a 0% return on investment, its an infinitely negative percent return on investment. This would only make sense if you want to live in a place indefinitely. When the economy here (Alberta, Canada) tanked due to falling oil prices, people who were renting and were laid off simply gave their 1-2 month notice to their landlord and moved to Montreal or Southern Ontario for better employment opportunities. Those who owned could not do that without taking a huge loss, selling their house for less than the price they bought it for, potentially less than the remaining mortgage obligation, potentially leading to their bankruptcy. As for renting it out? Forget about finding a tenant in that economy. And even if they did, how could they manage a property from the other side of the country? Mobility is worth more than zero. If you think the economy in the place you are living is going to be good for the rest of your life (or at least the rest of your mortgage term) and you are certain you would not want to move during this time, go ahead and buy a place. Otherwise, it makes sense to rent.

hrktb 9y ago
To chime in, being able to move to smaller or bigger places depending on your family needs, or closer/farther from big cities depending on your priorities of the moment are huge advantages.
FLUX-YOU 9y ago
Towns that depend on one or a few employers have been a losing bet for home ownership. This has been learned multiple times already. It seems good if you get out before it goes bust, but that's like catching a falling knife (especially if the company is not forthright about its impending doom).
- smnrchrds 9y ago
  It was not that there was one or few employers. There were many companies, large and small, operating in Calgary, Edmonton, and the rest of Alberta. The problem was that the lion's share of the economy was directly or indirectly related to a single industry: oil and gas. When the price of oil went down, they all suffered. I think the majority opinion on HN is that unlike other industries like energy, auto manufacturing, agriculture, etc., tech is uniquely immune to downturns. My impression is that most people on HN believe that the tech scene in California is only ever going to get bigger and more lucrative, and with it property prices are always going to go up. Even suggesting that tech and SF bay area might end up like, say Detroit and auto manufacturing industry, would make many to dismiss your point entirely. But as an outsider who does not have a horse in this race, I don't share the same mindset. Only time will tell the truth. But I won't be surprised if the sustained tech boom goes bust at some point during the next half century.

base 9y ago

Those $132.000 could into another investment like the SP500 and you could get 2.6x times the investment over a 10 years period (average return of 10% with dividends). This would pay the rent + provide you a return. I don't agree with all the points of the author as there are many factors to have into account when making the best financial decision. But rent can't be just seen as a negative investment, it's a cost that makes a person free to move their money into investments that provide a better return.