It all depends on where, what and how you buy. If you buy a dream home then true but if you don’t buy on emotions and buy smart then you will do better. So I just will have to disagree with Nick on this one.
I own a lot of real estate, I just don’t own my home. It’s more of a business decision than a financial decision. I don’t want my home to distract me from the tasks at hand. This will change as I get older and settle down.
For now, I want home to be, in essence, a fancy hotel. I want to come home at night, have everything take care of, clean, and ready for me to crash. I’m up early the next morning and gone.
I get your point, but still, it seems odd coming from the leader of a home inspection association.
It’s like a the president of a doctors association telling doctors they don’t actually need get check ups.
While not every inspection involves a real estate purchase, the desire for home ownership is at the heart of what we do.
No, that isn’t right. The American dream of home ownership and emotional attachment to ones home is not particularly good for our industry. We want instability in the real estate market. When someone loses their job, we don’t want them to be unwilling to look outside of a 50-mile radius from their home. That means they value their attachment to their home more than their career. We want them to move closer to where the jobs in their field are.
What we want is ease of transaction. We want zero transfer taxes, low down payment loans, and lower closing costs. We want people to sell their homes and move to different ones when their house is too small, or their house is too big, or they change jobs, or they need a first-floor bedroom, or they have twins, or they retire, or they divorce, or they no longer fancy the weather.
Our industry isn’t reliant on home ownership, especially the “buy and hold” homeowners. It’s reliant on number of transactions. The more the better.
I have friends in Lebanon who have lived in the same house all their lives, their family has lived in the same house for as far back as they have records of who lived there. We’re very lucky to live in a country where people move frequently.
Still, I find for most people, no mater if it’s their first house or 7th house, the home buying process is an emotional journey. And my understanding of the journey is why I love what I do, and part of what my clients like about me.
Now I agree with you.
IMO renting is throwing $$ out the window with no chance of equity.
I’ve been in my home for almost 15 years.
It has been good to me with an equity line of credit that was used to make other investments that netted me a big retirement fund.
I own property but I rent where I live, just like the option to get up and move if I desire.
That’s exactly what I do too.
You can’t build equity renting. They aren’t making more land. This point is even greater in a high value, highly sought after area. Our business is dependent on aspects of this and we are all here because of this. I cranks me up to even rent dumpsters. Always better to own. The first house I ever bought was a dump that I got for $69,000. I actually did it over and rented it to people for awhile (my in-laws lived in Europe for 4 years so we occupied their home), then renovated more and lived in it. I had a 10 year lumber bill on this place and sold it at the end of that time for $169,000. I had $25,000 into as I did all of the work myself. My payment was $500 a month. Some of you pay more a month for your truck now. The place sold again 5 years after I sold it and it went for $215,000 and was a little beat up. That is a pretty good rate of appreciation for something that was actually in depreciation mode and not being updated. I should have kept the darn place at that payment. But it was part of my life cycle to have to do it that way, at that time. I still did well on it. If I rented all of that time, I would have nothing to show for it. I built a new home and in the past 10 years, It has gained great equity and surpassed what my old home grew to. But if I would have rented all of this time…nothing. Rent movies, tools, limos, college apartments…but buy homes.
It’s not clear to me that you did better owning than renting using the examples you gave. I would need more information.
You said you bought a home for $69K and sold it for $169K. So out of that $100K you have to subtract a few costs: You have to subtract cost to service the debt (in the first 10 years of a 30-year mortgage, some of your payment goes to interest which is money down the drain). All the interest you paid is a cost that has to be subtracted as it is not ever recoverable (the bank keeps it). The cost of maintenance has to be subtracted. The cost of insurance (10 years of premiums) has to be subtracted. The “$25,000” you said you “put into it.” That $25K has to be subtracted. You also said you “did all the work yourself” so you have to also subtract the value of that work. Had you instead put that work into a second job, you would have been paid and could have saved those paychecks. So your labor has to be subtracted. You had closing costs buying it. Those all have to be subtracted as they can’t be recovered. You had closing costs selling it (and maybe even a real estate commission) that has to be subtracted. You might have had transfer taxes on both ends. Those have to be subtracted. You paid 10 years of property taxes that have to be subtracted. In my town, 10 years of property taxes are substantial. And then out of what’s left, you have to consider the time value of the money lost. The time value of money requires it to double every 10 years, so whatever you ended up with, you have to cut in 1/2 because the purchasing power of that money is only worth 1/2 of what it was when you bought the home. You also have to subtract the loss of revenue you could have earned elsewhere with all the money you had tied up into the home for 10 years, including your original down payment. In other words, whatever the money you had tied up or spent on the home would have made in some other venture has to be subtracted.
Now after all this, you were likely still better off (financially) to own than rent, but it isn’t as dramatic of a difference as it first appears to many.
I had $40,000 to put down on my next home with extra into my account. If I rented all of that time…nothing! The home I own now has risen $50,000 to $80,000 (depending on the appraiser) since I bought it. Sure, costs have risen as well, but not as fast or as much as my equity. If you rent, you help someone else gain the equity AND pay their mortgage. What is wrong with you on this? The key is to be able to take something and turn it into profit or a valuable asset. Like our services or a home or a stock. It is about chosing wisely. You aren’t in the game if you are renting. You are investing in someone elses investment with no pay off.
It depends. You have to do the math. I rent the home I’m typing from right now for not much more than the owner pays in property taxes. He, in essence, subsidizes my investment portfolio because I invest the rest (difference between cost in renting vs owning). It’s substantial. And with one eye and one hand tied behind my back, I can get much better returns anywhere else than I can on real estate. I don’t even think home appreciation… less costs of ownership, less costs to finance (interest), less transfer taxes, less costs of maintenance, less costs to insure, less property taxes, less costs to purchase, less costs to sell… nets 4%. I can make 4% anywhere without even trying. So it doesn’t make sense to me as an investment vehicle.
Also, don’t be tricked by inflation. Most home owners not only fail to count all the costs but they also fail to realize that the value of the home hasn’t gone up much at all (even before those costs). Oh, the price has gone up in number of dollars, but the value hasn’t gone up because the dollar is worth less and less every day. You really have to analyze the purchasing power of the dollars needed to buy the home in the year you bought it, vs. the purchasing power of the dollars needed to buy the home in the year you sold it to see if there was any REAL appreciation at all. Generally, there isn’t much.
It’s difficult for Americans to value something in anything other than U.S. dollars. Homes are really no different than gold (they are both hard assets). Dollars are currency. Yes, homes have an advantage over gold in that you can live in them, you can’t live in gold. But homes also have a disadvantage over gold in that there is high cost of ownership (maintenance, property taxes, etc.)
The U.S. dollar is constantly losing purchasing power. Hard assets like homes and gold, do not. In the long run, hard assets don’t really inflate relative to each other. They hold their value (purchasing power) even while increasing in amount of currency it takes to buy them (inflating).
This is a hard thing for most people to get their heads around unless you are accustom to pricing things in ounces of gold (gold can’t be printed, nor can homes).
Here is a little trivia question for you (and anyone who wants to play):
Has the average price of a home gone up in the past 125 years? Yes or no?
And if you answer yes, what do you think it has gone up by per year on average?
1% a year for 125 years?
4% a year for 125 years?
7.5% a year for 125 years?
10% a year for 125 years?
Pick one. Don’t look it up. Just pick one based on your intuition.
More people are renting today. The value of home prices is rising slower than in recent times. Prices of homes may start to drop again. They went up too fast for many years and the correction may not be over IMHO.
So John, the graph you posted shows that the price of homes has been going up since 1890… but has it really? What you’re actually seeing with your chart you posted in post #38 is not the average price of homes increasing but rather the purchasing power of the dollar decreasing. Thus, you need more dollars to buy a home.
The way to look at the real increase in the average value of homes is to price it in something that can’t be printed (inflated)… say gold.
When you look at the price of the average home in the U.S. priced in gold (despite homes being much bigger than they used to be) their value hasn’t gone up much since 1890. That’s 125 years!
Most home appreciation over the past 125 years is not appreciation in value, but rather currency debasement.