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My house in Seattle has been appreciating by about $100k/year over the past five years. In other words, I'm making $100k/year on a $50k investment. You wont fin

My house in Seattle has been appreciating by about $100k/year over the past five years. In other words, I'm making $100k/year on a $50k investment. You wont find returns like that in a 401k. And my interest payments are less than rent would be. Last but not least, home appreciation is TAX FREE up to half a million bucks. By all means, max out the $20k or so you are allowed to put into a 401k, but don't fool yourself into thinking it will outperform what is essentially a government-subsidized leveraged investment. You have to have exceptionally bad timing or move very frequently to lose in real estate.

paulcole 8y ago
It’s also quite difficult to go back in time and buy a house in Seattle 5 years ago. Don’t fool yourself into thinking that buying into what would become a ridiculously hot market is much more than dumb luck.
- tjr225 8y ago
  I rent in a neighborhood in Seattle that has homes that sell from anywhere between 700k to tens of millions, and a lot of houses that I'm looking at aren't selling. The market is so saturated with people trying to sell their homes for more than they are worth, which is a notable change in what is an extremely hot housing market.
lottin 8y ago
You're talking about unrealised profits. In order for the profits to be realised you need to sell the house. So what happens then? Either you keep the profits and are left without a house, or you buy another house and are left without a profit. Because, you see, it's not only your particular house that has appreciated, all houses have.
- techsupporter 8y ago
  Yep. I own where I live in Seattle and some of my younger-than-me friends and colleagues are routinely "you're so lucky, you're sitting on a gold mine!" Maybe so, but the sizzling hot housing market means I can't ever move to another place I own because, like you said, I'd have to take all of that appreciation and plow it right back into another property. Never mind that anything north of the ship canal is still completely unaffordable by my standards (that is, $450k or less, which is still a staggering sum of money in my world). I'd much rather do like the grandparent and have those gains as actual money in a 401k, not theoretical money in a house that I'd have to practically leave the time zone to realize.
- conanbatt 8y ago
  ITs still a good result: you can sell the house and rent, or move to a place where house appreciation wasnt so pronounced. Real-estate does give leveraged wins.
  - Redoubts 8y ago
    Dumping all my wealth into one leveraged asset sounds scary as shit.
    - conanbatt 8y ago
      Stocks have higher volatility that housing, for sure. What might be scary is the leverage.
- all_blue_chucks 8y ago
  What you say is true only if you never downsize and never leave a hot market. Realistically most people will book those profits when they no longer need to live next to a job center. When you don't need that downtown job anymore you can sell a million dollar house in a big city and buy a nicer house for half that elsewhere, pocketing the other half million as pure, tax-free profit.
  - perl4ever 8y ago
    "What you say is true only if you never downsize and never leave a hot market." What you say is true only if you know exactly when to downsize and leave a hot market. It can be the case that housing will always be more valuable in one place than another. But it can't be the case that the rate of increase will always be dramatically higher, because that will lead to a runaway differential. Therefore you have to expect a correction at a time that is uncertain.
    - all_blue_chucks 8y ago
      No, that's simply incorrect. The rising tide of inflation will lift expensive house prices more than inexpensive house prices. And no matter where you live, there is always a cheaper place you can go to when you sell your home. It's called a cost of living arbitrage.
  - loco5niner 8y ago
    What you say requires "timing the market". It's possible to get lucky and decide to retire at JUST the right time, have kids leave for college at JUST the right time, etc. More likely, the "hot market' will drop before you capitalize.
pyoung 8y ago
I agree with the others on this thread. You can't cash out unless you move out of the area or you downsize. And I may be wrong on this, but unlike CA (prop 13), your property taxes are going up. And regarding timing, 5 years ago was probably one of the best times to buy a house on the west coast in the last few decades. That moment has passed. The reason I bring up the rent calculator, is because in most markets, at most times, that calculator will tell you to buy. Its the reason that I started considering buying ~2 years ago. But things have changed. Rents have been flat for about 3 years (at least in the Bay Area), while prices kept creeping up. So the way I see it, right now may qualify as 'exceptionally bad timing'. If the price-to-rent ratio is this out of whack, at the very least rental investors are going to head for the exits. My hunch is others (myself included) will exit as well. And the nice thing about renting, is I am only in a 1 year lease, so if I am wrong, and if the fundamentals change, I can jump back it the market.

paulcole 8y ago

It’s also quite difficult to go back in time and buy a house in Seattle 5 years ago. Don’t fool yourself into thinking that buying into what would become a ridiculously hot market is much more than dumb luck.

tjr225 8y ago
I rent in a neighborhood in Seattle that has homes that sell from anywhere between 700k to tens of millions, and a lot of houses that I'm looking at aren't selling. The market is so saturated with people trying to sell their homes for more than they are worth, which is a notable change in what is an extremely hot housing market.

lottin 8y ago

You're talking about unrealised profits. In order for the profits to be realised you need to sell the house. So what happens then? Either you keep the profits and are left without a house, or you buy another house and are left without a profit. Because, you see, it's not only your particular house that has appreciated, all houses have.

techsupporter 8y ago
Yep. I own where I live in Seattle and some of my younger-than-me friends and colleagues are routinely "you're so lucky, you're sitting on a gold mine!" Maybe so, but the sizzling hot housing market means I can't ever move to another place I own because, like you said, I'd have to take all of that appreciation and plow it right back into another property. Never mind that anything north of the ship canal is still completely unaffordable by my standards (that is, $450k or less, which is still a staggering sum of money in my world). I'd much rather do like the grandparent and have those gains as actual money in a 401k, not theoretical money in a house that I'd have to practically leave the time zone to realize.
conanbatt 8y ago
ITs still a good result: you can sell the house and rent, or move to a place where house appreciation wasnt so pronounced. Real-estate does give leveraged wins.
- Redoubts 8y ago
  Dumping all my wealth into one leveraged asset sounds scary as shit.
  - conanbatt 8y ago
    Stocks have higher volatility that housing, for sure. What might be scary is the leverage.
all_blue_chucks 8y ago
What you say is true only if you never downsize and never leave a hot market. Realistically most people will book those profits when they no longer need to live next to a job center. When you don't need that downtown job anymore you can sell a million dollar house in a big city and buy a nicer house for half that elsewhere, pocketing the other half million as pure, tax-free profit.
- perl4ever 8y ago
  "What you say is true only if you never downsize and never leave a hot market." What you say is true only if you know exactly when to downsize and leave a hot market. It can be the case that housing will always be more valuable in one place than another. But it can't be the case that the rate of increase will always be dramatically higher, because that will lead to a runaway differential. Therefore you have to expect a correction at a time that is uncertain.
  - all_blue_chucks 8y ago
    No, that's simply incorrect. The rising tide of inflation will lift expensive house prices more than inexpensive house prices. And no matter where you live, there is always a cheaper place you can go to when you sell your home. It's called a cost of living arbitrage.
- loco5niner 8y ago
  What you say requires "timing the market". It's possible to get lucky and decide to retire at JUST the right time, have kids leave for college at JUST the right time, etc. More likely, the "hot market' will drop before you capitalize.

pyoung 8y ago

I agree with the others on this thread. You can't cash out unless you move out of the area or you downsize. And I may be wrong on this, but unlike CA (prop 13), your property taxes are going up. And regarding timing, 5 years ago was probably one of the best times to buy a house on the west coast in the last few decades. That moment has passed. The reason I bring up the rent calculator, is because in most markets, at most times, that calculator will tell you to buy. Its the reason that I started considering buying ~2 years ago. But things have changed. Rents have been flat for about 3 years (at least in the Bay Area), while prices kept creeping up. So the way I see it, right now may qualify as 'exceptionally bad timing'. If the price-to-rent ratio is this out of whack, at the very least rental investors are going to head for the exits. My hunch is others (myself included) will exit as well. And the nice thing about renting, is I am only in a 1 year lease, so if I am wrong, and if the fundamentals change, I can jump back it the market.