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How much did you "make" on your investment once you account for the ton of fees that are involved in housing though? If your house doesn't go up at least 5% a y

How much did you "make" on your investment once you account for the ton of fees that are involved in housing though? If your house doesn't go up at least 5% a year, you are already losing money once you account for HOA, insurance, taxes, repairs etc. I would bet you would have had a better outcome renting and investing in the SP500 instead.

iambateman 2y ago
Well...the substantial difference is that I could borrow at 3.6% and 2.7% respectively. On my first home, I put $5,000 down on a $96,000 house. I owe $40k (15-year mortgage) and it's worth $180k. Subtract $20k in seller costs, and $20k in expenses over the past decade and I have $100k in equity. That is about 6x better than just investing the $5k in the S&P.
- goalonetwo 2y ago
  How could you only put 20k$ of expenses over the last decade? That doesn't even cover close to the principal and interests on your mortgage. You also don't account for the time-value of money. In this case you might get slightly ahead than a simple boring SP500 investment, but those returns are the outlier and it would be extremely unlikely to repeat in the future (especially with the current interest rates)
  - iambateman 2y ago
    Agree on the interest rate change. I didn’t include P+I because when it was my primary residence it’s just my housing cost (which I can’t otherwise invest) and now as a rental those are paid for out of rental income. Regardless, my original point is that the returns outpace inflation, which I consider a political-social problem given the number of parents who are currently explaining to their kids that buying a home is a “good investment.”
onlyrealcuzzo 2y ago
If you're up 55% in 5 years on 5:1 leverage - that's a 275% return - or an annualized return of 22.5%. S&P returned ~16% over the same period. This is pretty consistent for the last ~20 years. A 6.5% annualized return might not sound like a huge difference - but over 40 years - that's an order of magnitude difference in your outcome. i.e. the difference in a $100k investment being worth $335M or $37M ($102M vs $11M inflation adjusted).
- goalonetwo 2y ago
  Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator. There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years. "House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024" https://tradingeconomics.com/united-states/house-price-index-yoy https://tradingeconomics.com/united-states/house-price-index...
  - onlyrealcuzzo 2y ago
    > Except that you don't have a 5:1 leverage, Except if it's your primary residence, you can get close to 30:1... The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation. > House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024 4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...
    - goalonetwo 2y ago
      Again, I'm not disputing the leverage. I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof) Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you? You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even. And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.
aynyc 2y ago
I did this math many many times. I have yet to see SP500 outperform owning a house in my area (I'm in NYC burbs).
- goalonetwo 2y ago
  Use the NYT Rent or Buy calculator. Most home made math don't account for the ton of fees/taxes/insurances and the time-value of money, and the exceptional returns of the SP500. I have yet to find a single place that would have been worth it long term versus renting (Bay area, which is a VHCOL) while you do the correct math.
  - aynyc 2y ago
    The problem of your math is that you are assuming rentals are equal from one place to another as long as the price match. I can tell you that's not true. My old 3BR apartment in a very desirable school neighborhood went from $2K to $5K now. My old neighbor still paying that price because their kids are in the school. They are kicking themselves right now for not buying when the rate was lower. Now, they are desperate to buy anything in the area.
    - goalonetwo 2y ago
      The rent or buy calculator from the NYT includes an expected rent increase over time: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...

iambateman 2y ago

Well...the substantial difference is that I could borrow at 3.6% and 2.7% respectively. On my first home, I put $5,000 down on a $96,000 house. I owe $40k (15-year mortgage) and it's worth $180k. Subtract $20k in seller costs, and $20k in expenses over the past decade and I have $100k in equity. That is about 6x better than just investing the $5k in the S&P.

goalonetwo 2y ago
How could you only put 20k$ of expenses over the last decade? That doesn't even cover close to the principal and interests on your mortgage. You also don't account for the time-value of money. In this case you might get slightly ahead than a simple boring SP500 investment, but those returns are the outlier and it would be extremely unlikely to repeat in the future (especially with the current interest rates)
- iambateman 2y ago
  Agree on the interest rate change. I didn’t include P+I because when it was my primary residence it’s just my housing cost (which I can’t otherwise invest) and now as a rental those are paid for out of rental income. Regardless, my original point is that the returns outpace inflation, which I consider a political-social problem given the number of parents who are currently explaining to their kids that buying a home is a “good investment.”

onlyrealcuzzo 2y ago

If you're up 55% in 5 years on 5:1 leverage - that's a 275% return - or an annualized return of 22.5%. S&P returned ~16% over the same period. This is pretty consistent for the last ~20 years. A 6.5% annualized return might not sound like a huge difference - but over 40 years - that's an order of magnitude difference in your outcome. i.e. the difference in a $100k investment being worth $335M or $37M ($102M vs $11M inflation adjusted).

goalonetwo 2y ago
Except that you don't have a 5:1 leverage, not even close once you account for the fees. The math is surprising. I recommend the NYT Rent or Buy calculator. There is also absolutely zero chance that you will get a 22.5% chance return on your house over 40 years. Those have been the crazy covid returns that will most probably be reverting to the mean over the next few years. "House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024" https://tradingeconomics.com/united-states/house-price-index-yoy https://tradingeconomics.com/united-states/house-price-index...
- onlyrealcuzzo 2y ago
  > Except that you don't have a 5:1 leverage, Except if it's your primary residence, you can get close to 30:1... The fees on $1m homes are usually less than 1.5%. It's essentially 5:1 unless you're investing in very low value homes which are a completely different type of investment - that you're usually going after cash-flow instead of appreciation. > House Price Index YoY in the United States averaged 4.63 percent from 1992 until 2024 4.63% on 5:1 leverage is... 23%... And you cherry picked at the start of a recession...
  - goalonetwo 2y ago
    Again, I'm not disputing the leverage. I'm disputing the fees that are removing at least 3 or even 4% a year, and that is on top of the interest. (I'm in the housing industry and I can tell you for a fact that everybody underestimate the fees until the tax increase, insurance increases and you need a new roof) Now, your house is going up 4.63% a year. You have 3% of fees and 3% of interest a year (or 7.5% if you buy today). How is your 5:1 leverage going to help you? You quickly realize that in order to make the math work you need your house to go up AT LEAST 5 or even 6% a year. In the current environment your house even needs to go up close to 8/9% a year to just break even. And you are right that you use leverage so if it goes up above those numbers you start to make up equity very quickly. But there is almost no chance those type of returns will hold in the future.

aynyc 2y ago

I did this math many many times. I have yet to see SP500 outperform owning a house in my area (I'm in NYC burbs).

goalonetwo 2y ago
Use the NYT Rent or Buy calculator. Most home made math don't account for the ton of fees/taxes/insurances and the time-value of money, and the exceptional returns of the SP500. I have yet to find a single place that would have been worth it long term versus renting (Bay area, which is a VHCOL) while you do the correct math.
- aynyc 2y ago
  The problem of your math is that you are assuming rentals are equal from one place to another as long as the price match. I can tell you that's not true. My old 3BR apartment in a very desirable school neighborhood went from $2K to $5K now. My old neighbor still paying that price because their kids are in the school. They are kicking themselves right now for not buying when the rate was lower. Now, they are desperate to buy anything in the area.
  - goalonetwo 2y ago
    The rent or buy calculator from the NYT includes an expected rent increase over time: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal...