Why your house is a terrible investment

[Lunican]

This might upset the real estate agents on MJ but still interesting...

Why your house is a terrible investment

I know I'm treading dangerous ground here. But before you get out the tar and feathers, let's do a little thought experiment together.

Imagine over a cup or coffee or a glass of wine we get to talking about investments. Then maybe one of us, let's say you, says:

"Hey I've got an idea. We're always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?"

Well, let's see now (pulling out our lined yellow pad), let's make a list. To be really terrible:

    It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.
    It should be illiquid. We'll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.
    It should be expensive to buy and sell. We'll add very high transaction costs. Let's say 5% commissions on the deal, coming and going.
    It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.

...

Read more: http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

[IrvAdams]

Oh wow. Interesting. It's even worse for us, we have investment properties also. So we have all the issues, and the renter's issues, etc. It's not for the faint of heart, for sure.

[carpnter]

It might be, but it sure beats living in an apartment with neighbors above, below, and beside you.

[BoldBoyOfTheSouth]

People trying to convince others and themselves that renting is mostly always better than buying is just a defence mechanism.  They feel like fools for over paying in a bubble market. They chose to take out a mortgage they knew they couldn't afford. They treat their home as an investment when it should be considered a home.

It's no different than people turning 60 and realize, they never put enough money away to maintain their lifestyles in a long retirement and now, all of a sudden, they hate their jobs, work too many hours but now they never want to retire for a laundry list of what they consider great reasons. Mostly, it's because they chose to not put away enough money & it they admit it, they are admitting to themselves they are lifetime losers despite having a good job and living well.

[BoldBoyOfTheSouth]

To a certain percentage of the population during periods of their lives, choosing to rent and having nothing when your lease ends makes sense. 

For money people and most families and most communities, they need the stability of the majority being home owners and having their neighbors take pride in ownership vs the typical rental property look of houses.

One size does not fit all and what fits you today maynot fit you five years from now.

Make the best short and long term choices for you, not what some expert tells you.

[BridgeTroll]

They treat their home as an investment when it should be considered a home.

This ^^^ 

[Tacachale]

Framing a home as only an "investment" is always silly. It's silly when people think they automatically should buy one as it's a "good investment", and it's silly when they think they automatically shouldn't buy one because it's a "bad investment". I've had enough friends who got hosed by their condos or houses to know buying isn't always a good idea, and I've also been jerked around by enough landlords to know that renting isn't inherently any better.

[MusicMan]

I made the mistake of going to the link and reading it. What an incredibly stupid article. Almost all of the comments apply to owning a business as well. That would be incredibly stupid too, according to the author. Most of the people I know who own their own homes are happy and most of the people I know who rent would love to own a place.

My Mom made the "crazy" decision to buy a place. She paid it off (with that pesky mortgage payment she established 25 years ago) and lived the last 5 years of her life with no payment at all. Just the taxes, $700 per year in SC. Then, when she passed away she left to her kids a property owned free and clear and worth about $200,000.

I'm so sick of reading these "why real estate is a bad investment" articles. Try sleeping in your 401K.   

[Captain Zissou]

People trying to convince others and themselves that renting is mostly always better than buying is just a defence mechanism.  They feel like fools for over paying in a bubble market. They chose to take out a mortgage they knew they couldn't afford. They treat their home as an investment when it should be considered a home.

Your last 3 sentences are saying the exact opposite of your first. Nice job, bro.

I bought my first home this year and it's not all the sunshine and rainbows that everyone said it would be, but it has brought me happiness and financial gain.  As a gardner, the owner of a huge dog, & someone who loves working in the yard; I have really enjoyed the freedom and the space afforded to me by my house. While the value has gone up, it is not liquid, so I have less cash for other investments as I previously did.

[BridgeTroll]

People trying to convince others and themselves that renting is mostly always better than buying is just a defence mechanism.  They feel like fools for over paying in a bubble market. They chose to take out a mortgage they knew they couldn't afford. They treat their home as an investment when it should be considered a home.

Your last 3 sentences are saying the exact opposite of your first. Nice job, bro.

I bought my first home this year and it's not all the sunshine and rainbows that everyone said it would be, but it has brought me happiness and financial gain.  As a gardner, the owner of a huge dog, & someone who loves working in the yard; I have really enjoyed the freedom and the space afforded to me by my house. While the value has gone up, it is not liquid, so I have less cash for other investments as I previously did.

Are you paying more for your home than you were paying rent?  Do the benefits of privacy and yard etc offset the decrease in liquidity?  Do you plan to live there for a long time?  I am quite certain you figured all that into your decision... I did... most people do.  These are the things that make a purchased home... a home... and not an investment.

[Tacachale]

People trying to convince others and themselves that renting is mostly always better than buying is just a defence mechanism.  They feel like fools for over paying in a bubble market. They chose to take out a mortgage they knew they couldn't afford. They treat their home as an investment when it should be considered a home.

Your last 3 sentences are saying the exact opposite of your first. Nice job, bro.

I bought my first home this year and it's not all the sunshine and rainbows that everyone said it would be, but it has brought me happiness and financial gain.  As a gardner, the owner of a huge dog, & someone who loves working in the yard; I have really enjoyed the freedom and the space afforded to me by my house. While the value has gone up, it is not liquid, so I have less cash for other investments as I previously did.

Are you paying more for your home than you were paying rent?  Do the benefits of privacy and yard etc offset the decrease in liquidity?  Do you plan to live there for a long time?  I am quite certain you figured all that into your decision... I did... most people do.  These are the things that make a purchased home... a home... and not an investment.

Well put.

I think there's a good point in Bold Boy's comment. I've met a lot of people who got burned on their condo or house purchase and don't want to do it again, so they act as if it's never a good idea for anyone. Just like there are plenty of people - especially before about 2008 - who've had ownership work out for them, so they think it's always a good idea for everyone. Clearly that's not the case. Lessons being: not everything's the same for every person/family, everyone should do their own homework, and brush your teeth twice daily.

[duvaldude08]

People definately buys home for other reason. Me, I purchase mine two years ago. Im paying $575.00, compared to $720.00 I was paying for my apartment, I dont have to move unless I choice too, I dont have to worry about rent going up 40.00 every year, I have privacy, I can have parties without someone calling the rent office, I just bought a dog and I dont have to pay a pet deposit, I can do anything I want without someones permission. The "investment" part is the last thing on my mind. Actually, its not on my mind at all.

[MusicMan]

While it may not be "on your mind," it seems like it is an investment in "peace of mind." Plus own it long enough, you will get a monetary return of some sort. With rent, you get a hole in your pocket (and I have no problem with people renting.)

[Captain Zissou]

BT: I rented in 3 vastly different situations before I bought, which ranged from the 33rd floor of the peninsula to a 9' by 10' room in a small house in Avondale.  My mortgage is slightly more than what I paid at the peninsula (actual principal and interest is $55 less per month). I will say that I bought more house than I needed, which is tough. However, I have enough space for a wife and child, when those come along. The freedom, privacy, and pride in having my own little slice of the planet definitely offset the added expense.

I can really argue both ways. It was great to pay so little last year and be able to save. This year i have been able to indulge in more hobbies and explore my creativity and build self reliance with my house (i never repaired anything i rented). If you buy or rent within your means, it's really a matter of personal preference. 

[pierre]

Well put.

I think there's a good point in Bold Boy's comment. I've met a lot of people who got burned on their condo or house purchase and don't want to do it again, so they act as if it's never a good idea for anyone. Just like there are plenty of people - especially before about 2008 - who've had ownership work out for them, so they think it's always a good idea for everyone. Clearly that's not the case. Lessons being: not everything's the same for every person/family, everyone should do their own homework, and brush your teeth twice daily.

I think alot of people are going to start being burned again. I am seeing people pay sometimes double for homes and condos for what they were going for 2009-2011. I saw some condos going for 40-50k a few years back and now are back over 100k.