5 ms·

Is a home an investment though? You would plan to live in it and probably retire in it. And even if you sold it eventually you would have to spread the profit (

by demarq 8y ago

Is a home an investment though? You would plan to live in it and probably retire in it. And even if you sold it eventually you would have to spread the profit (assuming appreciation) over the many years that you have lived in it.

sokoloff 8y ago
If you are pretty sure you're going to stay in the house for 7+ years, I still think buying housing is a good financial decision. I max my 401(k) each year. We bought a house 10.5 years ago and (because of leverage) the appreciation on it dwarfs my 401(k) balance (max deferral and S&P-500-ish investment returns for 10 years). Do I think the next 10 years will be as good as the last 10? I don't think so, because I don't think that housing can grow sustainably faster than wages [because wages are spent on housing] and as interest rates inevitably rise from the current low levels, that will put pressure on price appreciation as well. Nevertheless, we have a house that suits our needs and fully expect to be here in 10 years. It was a struggle to afford the downpayment and payments when we first bought it. It forced a certain amount of financial discipline. It'd be a similar sized struggle now for us to buy the place for the Zillow WAG. By all means, though, if you don't think your career/field is stable or think you're going to move in the next half-decade, don't buy a house to live in.
- opportune 8y ago
  Nitpick, but I think housing can grow faster than wages by a couple mechanisms. First, if supply is heavily constrained and people are trying to move to the area, what they might do is start sharing homes. Average wage doesn't change, but the number of wage earners in a home increases. Second, speculative investors can raise prices indefinitely since they aren't even earning a wage in that area - but I do think it's often overstated how much of an influence this has had in actual cities that have had housing cost explosions like Vancouver
  - sokoloff 8y ago
    I'll adopt your nits, though the second one seems at least loosely capped by wages in the long-run. The first one is also a valid (actually quite good) house-hacking strategy. My brother and my brother-in-law both afforded their first houses in large part by renting rooms in it to friends.
javagram 8y ago
> You would plan to live in it and probably retire in it Many people don’t. There’s an idea of a “starter home” that you buy and sell for a profit and trade up to the dream house later on in life.
- sokoloff 8y ago
  I think that's a generally bad idea for the buyer(s), but a fantastic idea for the real estate agents and mortgage originators. I wonder who's out there pushing that idea... Buying a good future rental as an owner-occupant with the intention of moving out and renting it out later is fine. Buying a starter home gambling that it will appreciate fast enough to cover the transaction costs and aggravation is, well, gambling IMO.
benj111 8y ago
It is. What's the difference between buying a house, and buying an annuity that pays the rent on that house? You don't even need appreciation to 'profit'. If the cost of buying and owning the house is less than the rent, that's profit (or outperformance at least). For some reason they got 'balanced' responses rather than actually answering the question, is it worth buying a house, which is a bit unsatisfying.
- soVeryTired 8y ago
  > What's the difference between buying a house, and buying an annuity that pays the rent on that house? Security of tenure. In the UK, the advantage is also the ability to repaint your walls, put up shelves, or install e.g. a functional, non-bottom-of-the-barrel shower without asking your landlord.
  - esotericn 8y ago
    Literally _the_ reason to buy a home. In London, with rare exception, you don't get to live in a nice place unless you buy it. There are some luxury developments with porters and whatnot for trust funders which are fitted well. (They're not necessarily unaffordable, but they're a waste; a labourer will save and buy instead). But generally, a privately rented flat is going to have multi-decade old everything, walls in the wrong place, crap carpets, bad or no storage, and just generally be suboptimal. Every flat I'd lived in as a renter I could have trivially made far better if I owned it. It's not a matter of permission; it's about ownership; no-one is spending five grand on doing up their landlord's kitchen; no-one's installing high end shelving or fitted wardrobes and taking them to the next place that's a different physical size in 8 months. Renting (as a majority thing rather than an option) is pernicious because it reduces investment in one's surroundings. It's not only internal stuff; you won't know your neighbours in six months, you don't care about the outside of the house or the lawn or whatever, etc.
magicalhippo 8y ago
The first home I bought was very much not a place I wanted to live until retirement age in. For one, it was on the 4th floor without elevators. A couple of homes later, I'm now in a place where I can see myself living until retirement. When I bought the first few homes I definitely had investment very much in mind, though not the overriding factor. Otherwise I might not have been able to upgrade.

by demarq 8y ago

sokoloff 8y ago

If you are pretty sure you're going to stay in the house for 7+ years, I still think buying housing is a good financial decision. I max my 401(k) each year. We bought a house 10.5 years ago and (because of leverage) the appreciation on it dwarfs my 401(k) balance (max deferral and S&P-500-ish investment returns for 10 years). Do I think the next 10 years will be as good as the last 10? I don't think so, because I don't think that housing can grow sustainably faster than wages [because wages are spent on housing] and as interest rates inevitably rise from the current low levels, that will put pressure on price appreciation as well. Nevertheless, we have a house that suits our needs and fully expect to be here in 10 years. It was a struggle to afford the downpayment and payments when we first bought it. It forced a certain amount of financial discipline. It'd be a similar sized struggle now for us to buy the place for the Zillow WAG. By all means, though, if you don't think your career/field is stable or think you're going to move in the next half-decade, don't buy a house to live in.

opportune 8y ago
Nitpick, but I think housing can grow faster than wages by a couple mechanisms. First, if supply is heavily constrained and people are trying to move to the area, what they might do is start sharing homes. Average wage doesn't change, but the number of wage earners in a home increases. Second, speculative investors can raise prices indefinitely since they aren't even earning a wage in that area - but I do think it's often overstated how much of an influence this has had in actual cities that have had housing cost explosions like Vancouver
- sokoloff 8y ago
  I'll adopt your nits, though the second one seems at least loosely capped by wages in the long-run. The first one is also a valid (actually quite good) house-hacking strategy. My brother and my brother-in-law both afforded their first houses in large part by renting rooms in it to friends.

javagram 8y ago

> You would plan to live in it and probably retire in it Many people don’t. There’s an idea of a “starter home” that you buy and sell for a profit and trade up to the dream house later on in life.

sokoloff 8y ago
I think that's a generally bad idea for the buyer(s), but a fantastic idea for the real estate agents and mortgage originators. I wonder who's out there pushing that idea... Buying a good future rental as an owner-occupant with the intention of moving out and renting it out later is fine. Buying a starter home gambling that it will appreciate fast enough to cover the transaction costs and aggravation is, well, gambling IMO.

benj111 8y ago

It is. What's the difference between buying a house, and buying an annuity that pays the rent on that house? You don't even need appreciation to 'profit'. If the cost of buying and owning the house is less than the rent, that's profit (or outperformance at least). For some reason they got 'balanced' responses rather than actually answering the question, is it worth buying a house, which is a bit unsatisfying.

soVeryTired 8y ago
> What's the difference between buying a house, and buying an annuity that pays the rent on that house? Security of tenure. In the UK, the advantage is also the ability to repaint your walls, put up shelves, or install e.g. a functional, non-bottom-of-the-barrel shower without asking your landlord.
- esotericn 8y ago
  Literally _the_ reason to buy a home. In London, with rare exception, you don't get to live in a nice place unless you buy it. There are some luxury developments with porters and whatnot for trust funders which are fitted well. (They're not necessarily unaffordable, but they're a waste; a labourer will save and buy instead). But generally, a privately rented flat is going to have multi-decade old everything, walls in the wrong place, crap carpets, bad or no storage, and just generally be suboptimal. Every flat I'd lived in as a renter I could have trivially made far better if I owned it. It's not a matter of permission; it's about ownership; no-one is spending five grand on doing up their landlord's kitchen; no-one's installing high end shelving or fitted wardrobes and taking them to the next place that's a different physical size in 8 months. Renting (as a majority thing rather than an option) is pernicious because it reduces investment in one's surroundings. It's not only internal stuff; you won't know your neighbours in six months, you don't care about the outside of the house or the lawn or whatever, etc.

magicalhippo 8y ago

The first home I bought was very much not a place I wanted to live until retirement age in. For one, it was on the 4th floor without elevators. A couple of homes later, I'm now in a place where I can see myself living until retirement. When I bought the first few homes I definitely had investment very much in mind, though not the overriding factor. Otherwise I might not have been able to upgrade.