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People always repeat this trope without defining "good" To be a "good investment" owning housing doesn't have to have a better ROI than the S&P 500, bonds or t

People always repeat this trope without defining "good" To be a "good investment" owning housing doesn't have to have a better ROI than the S&P 500, bonds or the interest in a savings account. It just has to burn money more slowly than renting which is the alternative you'd be forced to spend that money on. That's a really low bar. One's primary residence can both be a good investment and affordable.

eindiran 6y ago
It needs to take both into consideration to be a good investment in some sense: it might make financial sense to not spend a large sum of cash on a down payment, but invest the money and continue renting (even if the cost of renting is significantly greater than the (property taxes + mortgage - tax savings) would be for the same property), as long as the returns of the invested money are greater than what you are losing on renting. A friend of mine did the math on this for a few property types in Northern California and it worked out to be fairly close in most cases. With that said, there seem to be pretty significant stability and psychological gains to owning a house that may outweigh financial considerations of this kind. That is doubly true if the investment + renting option is within the same ballpark as the ownership option.
zeku 6y ago
The issue that is often overlooked is the value of the down payment. Say your home is $100,000(i know, i know lol). Your 20% down payment is $20,000. You have to factor in the interest that $20,000 would generate in say index funds or whatever you would do with it, when comparing buying to renting--along with all of the other stuff people usually factor like taxes & upkeep. In some areas this can make renting actually the cheaper option.
- csours 6y ago
  The down payment and cost of transaction, including inspections, taxes, and real estate agent fees, loan origination fees, other fees, cost of moving etc. In an average housing market it can take 5 years for those to pay off when compared to paying rent (do your own calculations, mileage varies dramatically). Unless you have enough cash to pay for a house, you are either renting money or renting a place to live.
david-gpu 6y ago
> It just has to burn money more slowly than renting which is the alternative you'd be forced to spend that money on You also need to take into account the opportunity cost of owning land. You can rent and invest the difference in other assets like stocks. If an asset class has much lower risk-adjusted returns than easily available alternative asset classes, I think it is fair to call it a poor investment.
- icedchai 6y ago
  You can get a lot more leverage with real estate than you can with stocks, so it's not exactly an apples-to-apples comparison.

eindiran 6y ago

It needs to take both into consideration to be a good investment in some sense: it might make financial sense to not spend a large sum of cash on a down payment, but invest the money and continue renting (even if the cost of renting is significantly greater than the (property taxes + mortgage - tax savings) would be for the same property), as long as the returns of the invested money are greater than what you are losing on renting. A friend of mine did the math on this for a few property types in Northern California and it worked out to be fairly close in most cases. With that said, there seem to be pretty significant stability and psychological gains to owning a house that may outweigh financial considerations of this kind. That is doubly true if the investment + renting option is within the same ballpark as the ownership option.

zeku 6y ago

The issue that is often overlooked is the value of the down payment. Say your home is $100,000(i know, i know lol). Your 20% down payment is $20,000. You have to factor in the interest that $20,000 would generate in say index funds or whatever you would do with it, when comparing buying to renting--along with all of the other stuff people usually factor like taxes & upkeep. In some areas this can make renting actually the cheaper option.

csours 6y ago
The down payment and cost of transaction, including inspections, taxes, and real estate agent fees, loan origination fees, other fees, cost of moving etc. In an average housing market it can take 5 years for those to pay off when compared to paying rent (do your own calculations, mileage varies dramatically). Unless you have enough cash to pay for a house, you are either renting money or renting a place to live.

david-gpu 6y ago

> It just has to burn money more slowly than renting which is the alternative you'd be forced to spend that money on You also need to take into account the opportunity cost of owning land. You can rent and invest the difference in other assets like stocks. If an asset class has much lower risk-adjusted returns than easily available alternative asset classes, I think it is fair to call it a poor investment.

icedchai 6y ago
You can get a lot more leverage with real estate than you can with stocks, so it's not exactly an apples-to-apples comparison.