home ownership?

[Zoë Sumra]

Then again, I'm one of these guys that built his house from the ground up, mostly out of pocket, doing most of the work myself save for a few specialty items I *had* to hire others to do. I spent about 30 grand doing that, about a third of which was a construction loan I paid off inside of a few years. The borough ('county' to most of you) tells me my pad is currently worth about $100,000, give or take a few nickles. So...does that mean I made a good investment? Or is it simply a bizzare fluke?

Making something, manufacturing, taking raw materials and making them worth more than you paid for them, is generally a good financial move, so long as you're making something that people want to buy, as you clearly have. (In this country, the average cost of building your own house is £30K less than buying a used house and about £60K less than buying a new house built by someone else.) So... good move, and congratulations.

However... as Min pointed out, a lot of people don't have the skills to do that or the time to learn those skills. My parents did. I don't.

Here is a question that I have. If home ownership is not a good investment, why the fuck do it? Renting doesn't sound so bad. I understand the notion of feeling good about taking care of your own property, but the appeal disappears for me if it's a huge financial strain.

And renting isn't a huge financial strain?

Renting has the advantage of making it much easier to move for a job, sure, and you don't have to worry that if you lose your job you'll lose all the money you've already put into your house as well as not having a place to live. It's a great system... if you live in a country with rent controls, like Germany, for instance. If not, well, mortgage payments aren't prone to double at short notice (given that there are ways to hedge against interest rate hikes for purchasing, which don't exist for renting).

ETA: Chataya - I couldn't agree more that we should strive (in most cases) to live below our means so that there is a lot of money for savings and investments. Of course people may disagree about what constitutes one's means, but I agree with the concept notionally.

As do I.

[Lummel]

If not, well, mortgage payments aren't prone to double at short notice (given that there are ways to hedge against interest rate hikes for purchasing, which don't exist for renting).

iirc correctly morgage interest rates in the UK reached 15 percent in the late 80s, early 90s. All that saved my parents from repossesion was they had been missold an endowment mortgage. Ah the irony.

I've seen similar figures to Mme Chataya's for the UK - that the house holds value with inflation and basically no more. You can luck out and happen to sell when the market is up, or the area can become gentrified, but then the opposite can happen to. I'm not sure if prices of terrace houses (USA row houses) in some of our northern cities quite fell to the level of their original Victorian sales prices, but they came pretty close (hey lucky the government was prepared to step in and demolish some to keep up the value of the rest eh!).

In investment terms your best bet is the Thinker X self build approach. I don't think the skills are the big issue in self build, because you can always buy in skilled labour to do the heating, the plumbing, the electrics or pouring the concrete slab base or what ever, its more an issue of having the time to build something and redo things that you get wrong if you're inexperienced (plus you've got to have somewhere else to live and a means of paying for construction).

[Filippa Eilhart]

I still don't understand why it's not an investement. If I buy a 400.000 EUR flat, in 30 years I can sell it and get back my 400.000 EUR, possibly more. If I put the 200 EUR a month I save by renting instead of buying in a savings account, in 30 years I have 100.000 EUR.

[naz]

Some thoughts:

1. On the self-build phenomenon: While I admire people who build their own homes with their own hands (greatly), it sometimes makes me nervous to hear about these things, being an architect. Especially when ThinkerX talks about "drawing up plans" and essentially having an architect rubber-stamping them for about 3 hrs worth of hourly fees. Yes, I know ThinkerX didn't say that exactly, and it's possible that THIS architect actually looked over the drawings, checked for code compliance, checked load calculations, checked for quality of details and materials, redrew the drawings, and THEN rubber-stamped it, but I don't know many architects that would do all that for such little money. I won't get into this debate too much because I have a biased opinion, but let's just say that not only do the vast majority of people NOT have the skills to build their own home, even fewer people have the ability to design their own home.

2. On housing as investment: I've heard these debates often in the last few years, and I can't of course say for sure, but I don't think people were arguing that houses were or weren't a good investment until recent events proved that housing can indeed drop in value. I remember hearing all through my formative years that real estate is the best investment because it always goes up in value. Well, we proved that wrong, didn't we? In any case, in my individual situation, I rented my whole life until the apartment we bought in India, which we paid for in cash on an installment basis (to my father-in-law, who built the building; this also allowed us to pay essentially at cost). The reasons for not buying while we lived in the States were varied, but mostly because a) we moved a lot; b ) we always felt like we were just short of funds for a down-payment; and c) we always were skittish of getting tied into such a huge investment without actually being, you know, wealthy. It worked out for us in the end, but that leads me to my next point...

3. Housing as financial decision: Frankly - and I think many people already know this - it's really impossible to look at housing as a strictly financial decision. It's true with lots of things, like cars and iPhones and whatnot, but much more so with homes. So all of this debate about whether one should buy or rent, or who caused the bubble to burst are really immaterial. Each individual - as ThinkerX has shown - chooses their housing situation for different reasons. It's like chaos theory... so many variables. So without using complex mathematics, is it really worth the time to debate all of this? Obviously for some people it's better to buy and for some it's better to rent. Why go through all these gymnastics to prove to fake people on the internet that THEY'RE WRONG, DAMN YOU. Like medical or legal advice.... one should sit down and talk to a professional. Talk to two. I know that Lany was asking a valid question, but I think people have veered off the topic completely... Is it really about investment? Lany even said in the OP that she wasn't talking about debt, and that she wanted to address the intangible questions related to home ownership. To me, that stuff is more interesting. Has society changed in this respect? Is home ownership still the holy grail for every life decision you make? If not, why has it changed? Yeah, I think finance has something to do with it, but definitely not all.

For example, there's the issue of having your own piece of property and caring for it. Having a yard and a roof and a garden. But what about condos? What about anti-sprawl urban planning trends where people are encouraged to live densely in cities? Why do people still want to own their own acre of land in a time when this is increasingly shown to be an environmental dead-end street?

What about mobility (i.e. as a reason people give for renting)? Why do people not want to stay in the same place for a long time? Is it related to jobs (or lack thereof) or is it something else? Is it simply that we have a decreased attention span even with regards to the place where we live? Like TV shows, we simply get bored of it? Or do we always want the "next thing", the extra bedroom, the bigger kitchen, the home theater?

Anyway, these are the things I'm more interested in hearing about. But all we keep hearing about is $$$, which to me is the least interesting thing in the world.

[Xray the Enforcer]

Anyway, these are the things I'm more interested in hearing about. But all we keep hearing about is $$$, which to me is the least interesting thing in the world.

:grouphug:

I love you, Naz.

To answer your question: I am not interested in owning property, because there are a lot of things I want to do with my life that preclude being tied down. As you know, I live in an area where it's actually NOT cheaper to buy than rent (in fact, we couldn't afford the mortgage on the place we rent -- I've done the comparison shopping, let alone all of the other incidental costs that come with home ownership). I also knew that I didn't want to live in this area for the rest of my life. Therefore, it did not make sense from an intellectual, emotional or financial angle to buy a residence here. Instead, I've been investing the extra cash elsewhere (mostly for retirement, some for a move elsewhere).

As for "why move?" I don't think it has anything to do with a low-attention span, at least for me. I hate the act of moving, as it's a gigantic pain in the ass. The last time we moved, it was because the apartment was literally killing me (fuck you, Apartment of Doom). In fact, I'm nervous to move anywhere else because what if the new place sets off my immune system? But I also want to learn more about the world around me as more than just as an occasional tourist. I probably wouldn't be able to move to a developing country due to my shitty immune system and the elaborate rituals I must go through in order to keep it in check, but if we can find a place that needs the skills that the family offers and the climate isn't too fucking miserable, why not give it a try for a couple of years?

[Ser Scot A Ellison]

Xray,

I doubt Laura and I will move again. We'd have to pack, carry, and then unpack all our books. A task to sisyphian to contemplate.

[mor2]

For example, there's the issue of having your own piece of property and caring for it. Having a yard and a roof and a garden. But what about condos? What about anti-sprawl urban planning trends where people are encouraged to live densely in cities? Why do people still want to own their own acre of land in a time when this is increasingly shown to be an environmental dead-end street?

What about mobility (i.e. as a reason people give for renting)? Why do people not want to stay in the same place for a long time? Is it related to jobs (or lack thereof) or is it something else? Is it simply that we have a decreased attention span even with regards to the place where we live? Like TV shows, we simply get bored of it? Or do we always want the "next thing", the extra bedroom, the bigger kitchen, the home theater?

Anyway, these are the things I'm more interested in hearing about. But all we keep hearing about is $$$, which to me is the least interesting thing in the world.

because like it or not money is one of the most determining things in your quality if life and while 'money dont buy you happiness' as the cliche goes and you dont need it to be happy, it still determines the amount of freedom you have in your decisions.

note how the majority of Xray answer is actually about $$$, its probably the reason why you moved to the USA and why I work abroad. because we know what we want/need and $$$ is only the means to an end.

1. On the self-build phenomenon: While I admire people who build their own homes with their own hands (greatly), it sometimes makes me nervous to hear about these things, being an architect. Especially when ThinkerX talks about "drawing up plans" and essentially having an architect rubber-stamping them for about 3 hrs worth of hourly fees. Yes, I know ThinkerX didn't say that exactly, and it's possible that THIS architect actually looked over the drawings, checked for code compliance, checked load calculations, checked for quality of details and materials, redrew the drawings, and THEN rubber-stamped it, but I don't know many architects that would do all that for such little money. I won't get into this debate too much because I have a biased opinion, but let's just say that not only do the vast majority of people NOT have the skills to build their own home, even fewer people have the ability to design their own home.

after reading ThinkerX post, I think that for this type of housing it's very likely that architect sell already pre made plans with minor adjustment for size and with city regulation on construction of foundation, basic utilities and then staged inspections it can be done.

[Lany Freelove Cassandra]

I would also advise most people to build nothing larger than a backyard shed.

Timmett and LooN being the exceptions.

:lol: I agree. I am very self sufficient, and I have been finishing the basement myself. We did the one room the (then) teenagers used as a bedroom. (it's becoming the "man cave" now) While it looks fine and is very functional, it is no where near a professional job. I will do the other part of the basement as well (except the plumbing for the bathroom). I just accept that I am not a pro and it will be obvious if anyone looks closely. This is all "inside" stuff. There is no way I would ever attempt any load bearing or exposed to elements work on the house..

[mor2]

I would also advise most people to build nothing larger than a backyard shed.

Timmett and LooN being the exceptions.

which they bought from IKIA and comes with a step by step instruction manual!

:lol: I agree. I am very self sufficient, and I have been finishing the basement myself. We did the one room the (then) teenagers used as a bedroom. (it's becoming the "man cave" now) While it looks fine and is very functional, it is no where near a professional job. I will do the other part of the basement as well (except the plumbing for the bathroom). I just accept that I am not a pro and it will be obvious if anyone looks closely. This is all "inside" stuff. There is no way I would ever attempt any load bearing or exposed to elements work on the house..

I remember few of my earliest works at home *shudders* still we learn and get better at it, unless you are my sister useless husband to be and cannot even be trusted to replace a light bulb

[Mlle. Zabzie]

If the tenants are only renting part of a property, they can only buy part of a property, obviously. That's not a problem; plenty of people own apartments in a multi-unit building.

To me uncertainty is a huge deterrent to renting; I've been kicked out of my home by landlords too many times, which is a nasty drain on time and money (packing, looking for a new place, assorted moving costs)

I own an apartment in a multi-unit building (actually, more accurately, I own shares in a corporation that entitle me to live in the apartment that we occupy, but coops are a funny beast). Felice, what you are describing, to me, is an argument for better tenant protections in your area, not for owning v. renting necessarily. Where I am, it's next to impossible to evict someone from an apartment that they rent. You actually have better protections as a renter than as an owner/occupant in an apartment in NYC.

I still don't understand why it's not an investement. If I buy a 400.000 EUR flat, in 30 years I can sell it and get back my 400.000 EUR, possibly more. If I put the 200 EUR a month I save by renting instead of buying in a savings account, in 30 years I have 100.000 EUR.

Time value of money.

Xray,

I doubt Laura and I will move again. We'd have to pack, carry, and then unpack all our books. A task to sisyphian to contemplate.

I'm a big proponent of having the movers pack for you. . . . .

[Floria]

I still don't understand why it's not an investement. If I buy a 400.000 EUR flat, in 30 years I can sell it and get back my 400.000 EUR, possibly more. If I put the 200 EUR a month I save by renting instead of buying in a savings account, in 30 years I have 100.000 EUR.

That is the point. You buy houses if you have spare money and can rent it out. It is an investment.

Paying like the worth of a house in interests to the bank, because you took a credit, leaves you with plus/minus zero profit. You won't sell your house for double the price. Never. Not mentioning the taxes, inflation, value decrease (30y old house!? who wants to buy that) and the further investment you need to do to maintain your house. The only one who makes profit is the bank. Their advertisment might make you believe, that you will save money and live a life full of joy and without sorrows until you are old and wizen, but thats utter bullshit.

A friend of my parents owns several houses, which he all rents out, which is basically his retirement pay. But he lives in a rented flat. I asked him once, why he didn't live in one of his houses and he said: "Hell no, the costs, the taxes, the stress... I pay my rent and when something is broken in my flat, I call my landlord and be done with it. Plus if I'd live in my own house, my children will lock me up in the next retirement home as soon as they could just to get their hands on this one. "

[MinDonner]

Floria, the housing market in your country is evidently quite different than that in many others. A house being thirty years old is not going to sell for significantly less than a brand new one here, in fact usually probably more, as the (slightly) older estates have more spacious layouts than the new ones that cram houses in as tightly as they can and rarely include as much storage capacity per house (more bedrooms and more bathrooms means you can sell for higher prices, regardless of how practical they are in terms of wanting to live in the place).

The main attraction to buying over renting is largely the fact that after 25 years, you can stop paying. It's all very well if you have a nice investment portfolio of rental properties that will carry on generating income in your retirement years, but most people who rely on jobs for their income, would like to stop doing that at some point, which is much harder if your living expenses are the same as in the days when you were in your pre-retirement years.

OTOH... the flexibility is an advantage, and not just for upping stakes and changing jobs, etc. I can vouch that it is kind of tough when a marriage ends and you are stuck in a 5-year fixed-term mortgage with your ex, and moving out comes with a potential huge financial hit. :dunno:

[Tormund Ukrainesbane]

I still don't understand why it's not an investement. If I buy a 400.000 EUR flat, in 30 years I can sell it and get back my 400.000 EUR, possibly more. If I put the 200 EUR a month I save by renting instead of buying in a savings account, in 30 years I have 100.000 EUR.

First of all, you aren't getting back your 400,000EUR, because over 30 years you will have paid 775,000EUR @ 5%. So off the bat you're losing 375,000EUR. Then of course there are taxes, insurance, and maintenance, which are all included in rent. Tack on another 5000EUR/year (that's a guess), so now you're out another 150,000EUR. So you've sunk in almost 1,000,000EUR and you're getting 400,000EUR back. (if the house holds with inflation, hopefully 1,000,000, so you'd get your original investment back, with no profit) This is assuming you have the iron discipline needed to not take out any home equity loans in that 30 years. Add into this, that by selling, you no longer have the house which you have just spent a million on and have lived in for 30 years and are now becoming a renter.

Once again, this is not to say that no one should purchase a house and that there are not excellent reasons for doing so. I am saying that if you want to MAKE MONEY, which is the point of an investment, a house is not the way to go. It was for about 20 minutes 5 years ago, but look where that got us.

[Whitestripe]

value decrease (30y old house!? who wants to buy that) and the further investment you need to do to maintain your house.

I dunno, I'm rather taken with my 150 year old house. At least I know it's built to last. Unlike my crappy garage, that really needs to be torn down and replaced. I'm jealous of all the houses around here that have barns for garages. A lot of them do, you know.

[Floria]

Floria, the housing market in your country is evidently quite different than that in many others. A house being thirty years old is not going to sell for significantly less than a brand new one here, in fact usually probably more, as the (slightly) older estates have more spacious layouts than the new ones that cram houses in as tightly as they can and rarely include as much storage capacity per house (more bedrooms and more bathrooms means you can sell for higher prices, regardless of how practical they are in terms of wanting to live in the place).

I was talking about the price per m². Example of my country:

http://www.immobilienscout24.de/Suche/S-T/Haus-Kauf/Baden-Wuerttemberg/Boeblingen-Kreis/Sindelfingen?pagerReporting=true

The square-meter prices of the older houses are like 30% cheaper than the newer ones. For example, the older houses are less energy efficient, you have to invest more money to maintain them etc. Let's pick a standard house from this list.

500.000 EUR. Assuming a relatively low interest rate of 3% and 25 years, you would have to pay the same amount of money in interests.

No way this house is going to sell for over 1 million EUR in 25 years. 500.000 EUR for the bank? for that amount of money I could rent hipster Penthouse flats or even houses until I die.

My point is, you buy a house if you HAVE the money. If you have to lend money to buy it, it's not profitable.

[MinDonner]

for that amount of money I could rent hipster Penthouse flats or even houses until I die.

In Germany, maybe. Not so much elsewhere. Plus, you have enviable national controls on rent and landlord powers, which we absolutely lack.

[Lany Freelove Cassandra]

That is the point. You buy houses if you have spare money and can rent it out. It is an investment.

Paying like the worth of a house in interests to the bank, because you took a credit, leaves you with plus/minus zero profit. You won't sell your house for double the price. Never. Not mentioning the taxes, inflation, value decrease (30y old house!? who wants to buy that) and the further investment you need to do to maintain your house. The only one who makes profit is the bank. Their advertisment might make you believe, that you will save money and live a life full of joy and without sorrows until you are old and wizen, but thats utter bullshit.

A friend of my parents owns several houses, which he all rents out, which is basically his retirement pay. But he lives in a rented flat. I asked him once, why he didn't live in one of his houses and he said: "Hell no, the costs, the taxes, the stress... I pay my rent and when something is broken in my flat, I call my landlord and be done with it. Plus if I'd live in my own house, my children will lock me up in the next retirement home as soon as they could just to get their hands on this one. "

ok, to put it another way.

I pay a mortgage that has insurance and taxes included. I pay $200 more than an apartment cost in my area. For that much difference, I get twice the space, a yard for the kid to play in and garden space.

In 24 years I will no longer have a mortgage payment (or much sooner, if things go the way we want next year), but if I was renting, I would still be paying, and by then it would be a much higher rent payment, while my mortgage payments stayed the same, with only slight increases in property taxes.

I will also be retired in that time, and on a much reduced income, so not having the rent payment to make could be the difference of living a comfortable life or not.

If you are not planning on moving, or if you are looking towards retirement, owning makes more sense.

If you are young and mobile, it is likely renting could be better.

[Tammy]

I've never understood the buying a home thing when you're mobile; it just often causes far more trouble than it's worth.

Years ago as a teenager my parents bought a house while we were stationed in Virginia, but not at the beginning of our time there, midway through. They bought the house knowing that we would be moving out of the state, possibly out of the country, in a year and a half.

My mother says they did it for the equity, but it ended up costing them a lot of trouble and a lot of money. I still don't understand why they did that.

[TerraPrime]

Re: Fannie/Freddie

To be fair, just because countries without the equivalents of Fannie/Freddie also experience housing bubbles, it does not mean that F/F did not contribute to the bubble here. I don't think people are arguing that F/F was the only required condition for a bubble, only that the presence of these programs primed the situation here for a bubble to happen. So, logically, the absence of F/F in other countries does not refute this argument.

Re: Buying house as investment

When Tormund et al. are using the term investment, they're talking about getting more money than what you put in, initially. I have read many finance advice pieces that all say that house purchase is not an investment, unless you are buying to rent out or you're flipping houses. However, I think this predicates on the assumption that you will get better return on your money, say from bonds and stocks, if you were to spend it there instead of as mortgage payment.

On a personal note, I'm not sure how convinced I am of the argument. So let's work out some numbers.

Median house price of U.S. is about 170k. If you put 10% as down payment, you will need a loan for 160K (not counting the minor fees like closing cost, etc.). If you take out a fixed rate mortgage for 30 years at 5%, you will have the following spread:

Monthly payment: $998.42

Total no. of payments: 360

Total mortgage interest paid: $137,708.85

Total Private Mortgage Insurance (in U.S. you are required to pay this until you have 20% equity in the house): $4972.50

Total payment: $359,431.35

If we assume an average appreciation rate for the house at 1% per yr (historic U.S. rate has been 3%, but let's go with a really conservative estimate), then the house that is worth $170,000 now will be worth $229,134 in 30 years.

So if you buy a house, at the end of your 30 year mortgage, you will have paid $359,431 so that you own a place that you can then sell for $229,134. Now, if the annual appreciation rate is 2.5%, then you will about break even, as your house will be worth $356,586 then. If the annual appreciate rate is higher, then you get more and you will have then made a profit if you sell it at the end of 30 year.

So if we compare that to investing in a traditional bond/stock market, we will assume that from that $1000/month of mortgage payment, you instead pay $900 in rent, and save $100 to put to investment each month. First, I don't even know what you can do the first few months. Can you even start IRAs or buy mutual funds with $100? Well, let's assume it's an annual thing, so you you take that $1200 (1 year of saving $100 each month) and you start investing. At the end of 30 years, assuming you do not take any money out from the growing pile, you will have $84,912.

So, if you want to buy a house AND make a profit of $84,912, then the annual appreciation rate will have to be about 3.2%. This is actually quite easily achieved in certain cities in the U.S., but maybe not as a national median.

Some things to consider:

1. You can save a lot on interest paid if you pay a little extra each month. I can't find a good calculator for it, but when I did my math for my own place, I save about $100k in interest by paying an extra $60/month. Now in this head-to-head comparison, you will have to add that $60 to the investment side, too, to make it equal.

2. Quality of living in a house worth $170K is going to be significantly different from the quality of living in an apartment worth $900/mo rent. But quality of living doesn't play into investment calculations.

3. We're not counting incidentals, such as the need to replace roofs, fix furnaces, cost of landscapes, etc., associated with home owning. Also, house insurance is much more expensive than renter's insurance.

4. Taxes. You pay direct property tax if you own, though you probably pay property (aliteration!) tax indirectly as renter. But property tax tends to go up with time, not drastically, but it does. This might be offset by the mortgage interest deductable you get in the U.S. (part of the money you pay as interest to your house mortgage can be deducted from the calculation of how much you pay tax on).

5. We assume an even return in investment, and an even increase in property value. Big dips and rises can make the numbers look very different.

6. We assume a static rent. This is impossible. Rent goes up, but it doesn't go up steadily. You can always assume that you will only pay $900 a month, so each time the rent goes up, you move. Realistic? No.

So, generally speaking, renting is better unless you are pretty sure the appreciation rate on a house is going to be better than 3.2% or so.

However.

This assumes you sell the house in 30 years. What if you keep living at that place? At that point, your cost of accommodation is zero. Whereas, if you rent, you will continue to pay rent. So if you keep paying $900/mo in rent, it will take you 9 years to eat through all of your savings (assuming you still put $100 away each month). So in the 40th year, the owning a house thing really pays off, if you stay living there.

For my personal taste, I'd much prefer owning than renting, even on purely economic sense.

[Just a peasant]

The upkeep of the house is my problem. Yes, I could probably squeak by with a mortgage and some creative bill paying but what happens when that water heater goes or when we get 25 inches of snow and the roof starts to leak (never mind the snow shoveling)? I could not afford that.

Yes my money goes to my 90 year old landlord and what I pay in rent is criminal but the price of housing in Boston is outrageous. If I was to move further away from the city, my cost of commuting goes up and that negates the the rent difference.

One of the big drivers of people moving away from Massachusetts, besides the weather, is the cost of housing here. If my parents were not sick, I would be one of them.