5 ms·

>You also generally can’t borrow 5x your income and invest it, but you can do that on a house, so if you think house prices will rise then you’re missing out on

by jere 6y ago

>You also generally can’t borrow 5x your income and invest it, but you can do that on a house, so if you think house prices will rise then you’re missing out on a change for major leverage you won’t get elsewhere. I've been struggling with this part. I just moved to Austin, looked at the market from 2012-2020, and what do you know almost every house I look at has doubled in value in 8 years. That's a 9% annual return! Shouldn't I get the biggest house I can afford since the city is growing so fast? Well not so fast. I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. Not to mention HOAs, PMI, insurance, etc. I might end up making 2% annually compared to 7% in the stock market and that's only if I see the same returns as the most cherry picked period I could possibly find. Anything less and I'm absolutely losing. I agree on the you have to live somewhere part, but treating it like an investment seems like a bad bet.

NovemberWhiskey 6y ago
>I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. ... but then you'll also probably (if you're like the average HN poster who isn't taking the standard deduction) deduct your mortgage interest and your property taxes, and you'll be exempt from up to $500,000 in capital gain if married, filing jointly, and using the home as your principle residence. So ... complicated.
vonmoltke 6y ago
> I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. You need to subtract those anyway, as they are baked in to your rent payment, though the interest will depend on the landlord's circumstances. A note on property tax, though, which will complicate the comparison even more than my sibling commenter already has: Home values are reassessed in Texas every three years, not annually. This means your taxable value is locked in for three years, and the only way your bill can go up or down is if a taxing authority changes their rate. Additionally, in this period, a house appreciating at an average of 9% per year will appreciate at an average of 29.5% per assessment period. Texas homestead protection, which you can get and your landlord can't, limits the increase in taxable value per assessment to 10%. So, if you were renting that same property you would be eating a larger increase in rent every three years than the increase in property tax if you owned it yourself.

by jere 6y ago

NovemberWhiskey 6y ago

>I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. ... but then you'll also probably (if you're like the average HN poster who isn't taking the standard deduction) deduct your mortgage interest and your property taxes, and you'll be exempt from up to $500,000 in capital gain if married, filing jointly, and using the home as your principle residence. So ... complicated.

vonmoltke 6y ago

> I have to subtract from that about 3% for interest, 2.5% in property tax, 1% for maintenance. You need to subtract those anyway, as they are baked in to your rent payment, though the interest will depend on the landlord's circumstances. A note on property tax, though, which will complicate the comparison even more than my sibling commenter already has: Home values are reassessed in Texas every three years, not annually. This means your taxable value is locked in for three years, and the only way your bill can go up or down is if a taxing authority changes their rate. Additionally, in this period, a house appreciating at an average of 9% per year will appreciate at an average of 29.5% per assessment period. Texas homestead protection, which you can get and your landlord can't, limits the increase in taxable value per assessment to 10%. So, if you were renting that same property you would be eating a larger increase in rent every three years than the increase in property tax if you owned it yourself.