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My point is this: The problem with the comparison of what you can invest if you don't buy a house is that you have to have the cash for plowing into other inv

My point is this: The problem with the comparison of what you can invest if you don't buy a house is that you have to have the cash for plowing into other investments and still pay for a place to live. The only money you really have to play with is the down payment and closing costs to make up for the month to month loss of equity and difference between renting and mortgage+incidentals (renting is usually still costlier since owners like to make a profit) in the rent-vs-buy comparison. As for maintenance costs: I've had my air conditioner, garage door, stove door, heater, and dish washer all fixed over the last couple of years. Granted, you have to pay $80 for the repair visit but it is better than paying $1K to get my garage door repaired. The only things it doesn't cover are normal wear and tear. So, yeah, it doesn't cover the full cost but it goes a long, long way.

hhw 13y ago
If the carrying costs of ownership are higher than rent (which they are in a lot of markets), it's fair to include that difference as amounts that can be invested. I personally do not think of forced savings as a benefit; if someone cannot exercise enough self-control to put aside part of their income to invest, they should probably think twice whether they're ready for one of if not the most significant, long-term financial decisions of their lives. A down payment is usually a significant chunk of money, and should definitely be factored in. Also keep in mind that when you get a mortgage, you are effectively debt leveraging, which although magnifies your gains will also magnify your losses. So the idea that real estate is inherently safer is not necessarily true. Whereas most people think of buying stocks on margin as being insanely risky, they don't think twice about doing the equivalent with housing. And stocks have historically consistently outperformed housing.
- clavalle 13y ago
  >I personally do not think of forced savings as a benefit; That is true only if the alternative is doing something financially productive. In this case the alternative is spending the money. You are seeing the house as an investment. Your analysis is spot on when talking about a house that is not the primary residence. But it fails when applied to the primary residence because the money is being spent on housing either way...
  - hhw 13y ago
    Why is the alternative necessarily spending the money? If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account? This analysis is specifically taking into account that money is spent on housing either way. Otherwise, we'd be comparing the ROI of purchasing a house and renting it out as a business in comparison to other forms of investment.
    - clavalle 13y ago
      >If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account? Because you have to live somewhere.
      - hhw 13y ago
        Right. What I'm talking about is the differential between the carrying costs of ownership, and the cost of renting, which is what's often referred to as 'forced savings'. Nowhere am I saying you don't have to pay rent. If renting costs less than the carrying costs of owning (which it often is), you can take those cost savings to the bank to be invested. This should also be factored into the cost comparisons.
        clavalle 13y ago
        Owners of rental properties wish to make a profit. Therefore renting is more expensive, month to month, than owning a property even after factoring in all costs involved. The only time this isn't true is if the owner has a very old mortgage or outright owns the home.

hhw 13y ago

If the carrying costs of ownership are higher than rent (which they are in a lot of markets), it's fair to include that difference as amounts that can be invested. I personally do not think of forced savings as a benefit; if someone cannot exercise enough self-control to put aside part of their income to invest, they should probably think twice whether they're ready for one of if not the most significant, long-term financial decisions of their lives. A down payment is usually a significant chunk of money, and should definitely be factored in. Also keep in mind that when you get a mortgage, you are effectively debt leveraging, which although magnifies your gains will also magnify your losses. So the idea that real estate is inherently safer is not necessarily true. Whereas most people think of buying stocks on margin as being insanely risky, they don't think twice about doing the equivalent with housing. And stocks have historically consistently outperformed housing.

clavalle 13y ago
>I personally do not think of forced savings as a benefit; That is true only if the alternative is doing something financially productive. In this case the alternative is spending the money. You are seeing the house as an investment. Your analysis is spot on when talking about a house that is not the primary residence. But it fails when applied to the primary residence because the money is being spent on housing either way...
- hhw 13y ago
  Why is the alternative necessarily spending the money? If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account? This analysis is specifically taking into account that money is spent on housing either way. Otherwise, we'd be comparing the ROI of purchasing a house and renting it out as a business in comparison to other forms of investment.
  - clavalle 13y ago
    >If those funds can be taken to the bank each month to pay off a mortgage, why can those same funds not be taken to the bank to deposit into a retirement/savings/investment account? Because you have to live somewhere.
    - hhw 13y ago
      Right. What I'm talking about is the differential between the carrying costs of ownership, and the cost of renting, which is what's often referred to as 'forced savings'. Nowhere am I saying you don't have to pay rent. If renting costs less than the carrying costs of owning (which it often is), you can take those cost savings to the bank to be invested. This should also be factored into the cost comparisons.
      - clavalle 13y ago
        Owners of rental properties wish to make a profit. Therefore renting is more expensive, month to month, than owning a property even after factoring in all costs involved. The only time this isn't true is if the owner has a very old mortgage or outright owns the home.