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I've always been confused about the housing as investment idea. We don't consider cars to be an investment either do we? I feel like the idea can only help to d

by rtpg 13y ago

I've always been confused about the housing as investment idea. We don't consider cars to be an investment either do we? I feel like the idea can only help to drive the prices up further.

snowwrestler 13y ago
Cars are not an investment because, unless we are talking about collectible antiques, cars always depreciate. That's why it's more accurate to think of cars as expenses. Real estate can appreciate. It's not guaranteed to do so, but it can, and with significant leverage. That's why it's considered an investment.
- rtpg 13y ago
  but the appreciation only happens because everyone wants it to right? I get that building a pool makes your house worth more, but trying to ride a bubble seems messy
  - snowwrestler 13y ago
    There are measurable fundamentals that consistently lead to local real estate appreciation, like population growth, economic growth, increasing mean income level, school district ranking, nearby commercial development, nearby infrastructure development, etc. Of course all of this can be trumped over short time periods by nationwide trends like the recent financial crisis. But with strong local fundamentals, such trends create more volatility than permanent depreciation.
  - mathgeek 13y ago
    > I get that building a pool makes your house worth more Not necessarily. Many folks see a pool as an extra expense and will immediately disregard a potential purchase because the property has a pool. This is especially true for above-ground ones that aren't as durable as in-ground designs.
- VLM 13y ago
  Thats a pretty good definition of speculation not investment. Its investment if you can oil the wheels as a landlord such that you can rent money from a bank cheaper than renting the land from the landlord. That of course is a mathematical impossibility at this time in most areas.
  - snowwrestler 13y ago
    It is possible to speculate in real estate, but most homeowners don't. Speculation is typical high-risk and short term. Most residential real estate transactions are neither.
    - VLM 13y ago
      LOL define any real estate transaction in the last decade or so, especially home equity withdrawls!
      - snowwrestler 13y ago
        In investing, it is a big mistake to extrapolate the recent past into universal guidelines. For example, leading up to the real estate market crash, a lot of people made the mistake of thinking that because home prices had gone up for a decade, they would always go up. But, it's just as big a mistake today to think that because home values have gone down from 10 years ago, home prices will never go up again.
- john_b 13y ago
  To be precise, a house is a depreciating asset, but the land it sits on is (almost alwasys) an appreciating one. Most homes are built well enough that their rate of depreciation is slow. And since the purchase price is high compared to a car, it is more affordable to spend a few thousand dollars rennovating an aging house than an aging car. But eventually the house will break down and its value will go to zero. In terms of longevity, the most successful house to date is the Great Pyramid of Giza, and it is so heavily worn that its value is now mostly due to the tourist dollars it brings in because of its uniqueness. If cars were tethered to a plot of land in the same way houses are, the comparison between cars and houses might be more valid. Investing in parking spaces can actually be profitable, in some cases. But whether you buy a house or a car, you're buying a construction that time and weather will ultimately beat into a worthless object. Ordinary homebuyers are too used to thinking of a house as an investment by its very nature and ignoring both the expenses of homeownership and the investment quality of the land the house sits on. Even land is a depreciating invesment in an area where the population is sharply declining and tourism/business is minimal. Nothing is a good investment by its nature, only by the circumstances in which it exists.
  - bubbleRefuge 13y ago
    Well put. What does this say about a condo buildings? Ratio of livable structural sqft to land sqft is much higher in condos than SFH and yet there is still crazy appreciation.
sliverstorm 13y ago
houses are depreciating assets. The land they sit on can often be appreciating assets. Why is this? Because there are only so many acres of land within walking distance of downtown, or the major office complex.
- muzz 13y ago
  usually by not necessarily-- the cost of construction can (and often does) go up, due to things like higher labor costs, material costs, etc. of course, it could go down due to better technology but the general trend seems to be up.
  - sliverstorm 13y ago
    Yes, it could happen that way, but the construction costs would have to spike pretty fast to outweigh the simple deterioration an older building experiences.
    - muzz 13y ago
      Yes, agreed.

by rtpg 13y ago

I've always been confused about the housing as investment idea. We don't consider cars to be an investment either do we? I feel like the idea can only help to drive the prices up further.

snowwrestler 13y ago

Cars are not an investment because, unless we are talking about collectible antiques, cars always depreciate. That's why it's more accurate to think of cars as expenses. Real estate can appreciate. It's not guaranteed to do so, but it can, and with significant leverage. That's why it's considered an investment.

rtpg 13y ago
but the appreciation only happens because everyone wants it to right? I get that building a pool makes your house worth more, but trying to ride a bubble seems messy
- snowwrestler 13y ago
  There are measurable fundamentals that consistently lead to local real estate appreciation, like population growth, economic growth, increasing mean income level, school district ranking, nearby commercial development, nearby infrastructure development, etc. Of course all of this can be trumped over short time periods by nationwide trends like the recent financial crisis. But with strong local fundamentals, such trends create more volatility than permanent depreciation.
- mathgeek 13y ago
  > I get that building a pool makes your house worth more Not necessarily. Many folks see a pool as an extra expense and will immediately disregard a potential purchase because the property has a pool. This is especially true for above-ground ones that aren't as durable as in-ground designs.
VLM 13y ago
Thats a pretty good definition of speculation not investment. Its investment if you can oil the wheels as a landlord such that you can rent money from a bank cheaper than renting the land from the landlord. That of course is a mathematical impossibility at this time in most areas.
- snowwrestler 13y ago
  It is possible to speculate in real estate, but most homeowners don't. Speculation is typical high-risk and short term. Most residential real estate transactions are neither.
  - VLM 13y ago
    LOL define any real estate transaction in the last decade or so, especially home equity withdrawls!
    - snowwrestler 13y ago
      In investing, it is a big mistake to extrapolate the recent past into universal guidelines. For example, leading up to the real estate market crash, a lot of people made the mistake of thinking that because home prices had gone up for a decade, they would always go up. But, it's just as big a mistake today to think that because home values have gone down from 10 years ago, home prices will never go up again.
john_b 13y ago
To be precise, a house is a depreciating asset, but the land it sits on is (almost alwasys) an appreciating one. Most homes are built well enough that their rate of depreciation is slow. And since the purchase price is high compared to a car, it is more affordable to spend a few thousand dollars rennovating an aging house than an aging car. But eventually the house will break down and its value will go to zero. In terms of longevity, the most successful house to date is the Great Pyramid of Giza, and it is so heavily worn that its value is now mostly due to the tourist dollars it brings in because of its uniqueness. If cars were tethered to a plot of land in the same way houses are, the comparison between cars and houses might be more valid. Investing in parking spaces can actually be profitable, in some cases. But whether you buy a house or a car, you're buying a construction that time and weather will ultimately beat into a worthless object. Ordinary homebuyers are too used to thinking of a house as an investment by its very nature and ignoring both the expenses of homeownership and the investment quality of the land the house sits on. Even land is a depreciating invesment in an area where the population is sharply declining and tourism/business is minimal. Nothing is a good investment by its nature, only by the circumstances in which it exists.
- bubbleRefuge 13y ago
  Well put. What does this say about a condo buildings? Ratio of livable structural sqft to land sqft is much higher in condos than SFH and yet there is still crazy appreciation.

sliverstorm 13y ago

houses are depreciating assets. The land they sit on can often be appreciating assets. Why is this? Because there are only so many acres of land within walking distance of downtown, or the major office complex.

muzz 13y ago
usually by not necessarily-- the cost of construction can (and often does) go up, due to things like higher labor costs, material costs, etc. of course, it could go down due to better technology but the general trend seems to be up.
- sliverstorm 13y ago
  Yes, it could happen that way, but the construction costs would have to spike pretty fast to outweigh the simple deterioration an older building experiences.
  - muzz 13y ago
    Yes, agreed.