anaylst states owning a home is a scam

[mizzou]

http://finance.yahoo.com/tech-ticke...09285.html?tickers=REZ,IYR,XHB,HD,LOW,DHI,PHM


I think he is basically right on some of his general points, but the fact that renting is far superior to me is sort of a joke.

I mean, when you rent, you pay for the upkeep, maintenance, and all of those other things and you don't get the benefit obtaining a principal interest in the property.

Renting gives you a 0% return or even a a negative return.

I'm not saying homes should be looked at as an investment, thats where I agree with him, but the fact we should ALL be renting is preposterous.

It would cost me about $1200-1500 to rent out a similar property that I live in now, with taxes, mortgage, insurance, $ for major repairs, I probably invest close to $1200-1500 per month to actually live here. (sometimes much less sometimes more, case and point I'm buying a new 30 year roof tomorrow)

Only diff is that I am at least paying down principal and after about 10 years, I will not have a loan. that is the HUGE return on investment, not having to pay for a freaking mortgage!!

 

[ChunkiMunki]

i think most people in the past make money when they sell, also my mortgage is half of what a comparable rental house goes for, and it will never increase for the life of the loan, unlike rental rates which can vary.

 

[StageLeft]

Rationally he's right but since most people do such a terrible job saving/investing the end result is that many people have a huge amount of their net worth in their house, since in a way the mortgage forced that equity out of them. For a disciplined person, though, they really are expensive and far, far from a sure and good investment.

 

[Zargon]

Who else is going to loan you that kinda cash and GIVE you the thing you are borrowing against? epsecially currently with the interest rates you can get.

No one.

No one would have loand me 200K last year and given me a porsche

its a scam on both ends sort of.

 

[LegendKiller]

While he has some valid points, he's only right in a housing downturn.


1. Housing appreciating only .4% vs 8%. Sorry, but that's incorrect, you can take any low point in time and compare it to anything else, it's all measurement period. However, the numbers are about correct, except he's not eliminating inflation from the calculation.

Now, the biggest difference comes from risk, stocks ARE risky, houses are not, well, weren't until 10 years ago when everybody decided to become stupid. Since houses are not risky, they don't appreciate much.

2. Rent, taxes...etc. are included in any rent scenario, the key differential is that you're paying the distributed cost rather than the individual cost, but you're still paying it. In addition, you're paying somebody else's mortgage, not your own.

3. Rent goes up, usually exceeding inflation, because the building owner wants more return than just annual rent increases at inflation, he wants more profit.

4. Unless you stay in the same rental unit time after time and are completely satisfied with not being able to change things yourself, you have to move. That should be factored in. I've read studies that indicated rental people moved more often in the same locale than buyers.

5. The price/rent ratio is usually a little over 1, but not too much. It got above 1.6 during the bubble, but has fallen back to ~1. This is key, as there now is almost no difference of renting to owning.


Overall, the guy is flat-out wrong. You cannot compare two completely different asset classes. Nor can you just take the cost of not owning and invest it into the stock market (it has a lot more risk than owning), especially considering you STILL have to live somewhere, thus, you might only be able to invest the differential, but that differential is now gone, so you really have nothing to invest.

 

[PJABBER]

You cannot compare two completely different asset classes...

Very nice explanation!

 

[soulcougher73]

I agree somewhat. The recent housing bubble has really skewed peoples perceptions of homes as an investment when historically they are not. You should buy a home to live in not as an investment. And the exploding bubble is a testament to that.

 

[drebo]

I think the main problem regarding home ownership is this idea that the gubb'ment and the left are pushing that EVERYONE should own a home. That's simply not the case. Not everyone has the financial wherewithal or means to own a home.

There's nothing wrong with renting, to be sure, but property ownership should be a goal of most any middle class family. It's most certainly not a scam. The only scam about it was the government encouraging loans to people who would not normally qualify for them. This caused banks to have to push non-conforming loans which basically fucked those people over. If mortgages were restricted to the traditional 15- and 30-year fixed and 5-year ARM loans, there would not have been an issue. Balloon payments and interest only loans were what caused the problem. Get rid of those and only people who can legitimately afford a home will be able to get one.

In my area, a 2-bedroom, 2-bathroom appartment is ~$900 to rent. The note on a $150k mortgage is roughly $1100. There are currently 3-bedroom houses available for ~$120K in this area. Renting simply doesn't make sense if you can afford not to.

 

[Moonbeam]

A home is an investment in yourself. You decide what to plant in your yard, what color the walls are, what kind of flooring you want to walk on, whether you can have a dog. It's an investment in a community, a place to belong, a place your kids grew up in.

But there are pin heads like this asshole who see only money.

 

[ProfJohn]

Look at the video... the guy is a loser who lives in his mom's basement.

Two scenarios:
I want to spend $1000 a month on a place to live for the the next 10 years.

Option 1: I rent for $1000 a month for ten years. At the end of ten years I walk away with nothing.

Option 2: I buy a $185,000 house using a USDA no money down loan at 5% interest. My payment is approx. $1,150 a month. (that includes taxes and insurance) However, thanks to the mortgage interest deduction I save $150 a month on federal taxes thus making my effective monthly payment $1000.

At the end of 10 years my house is now worth approx. $200,000 (based on 1% appreciation per year)
And my loan balance is $150,000.

Selling the house will cost me 10% of its value or $20k.

So selling the house after 10 years will leave me with $30,000

I think I'll take option 2, thank you

 

[Zebo]

Meh. sorta..a house is a liability not an asset, assets produce income in my book houses don't but you need a place to live nevertheless...In general my dad taught me to buy when mortgages are less than rents, sell when rents are less than mortgages. Served me pretty well. I've only been upside down on two homes and I used to build them, 23 of them, never personally. Buy low sell high.

 

[PJABBER]

A home is an investment in yourself. You decide what to plant in your yard, what color the walls are, what kind of flooring you want to walk on, whether you can have a dog. It's an investment in a community, a place to belong, a place your kids grew up in.

Not quantifiable, but unquestionably correct.

As a corollary, a renter may enjoy moving to a new place once in a while without the attendant risk (loss or gain) to personal capital. New neighbors, new view, different environment.

I loved owning homes and also I loved being able to pick up and go with minimal hassles.

Looking back I moved about every two or three years and while the home market was going up always made a substantial gain whenever I owned. Usually rented for six months to a year to get to know a market, bought with very little down and then sold within two years to move with job relocations.

Depending on where you want to live, it seems both renters and buyers have excellent markets and lots of choice.

I think if you had the down payment funds (hard to find those 5% down loans, though) a good chance to stay employed in one place, and can qualify for the current 5% interest rates, it is a good time to buy, especially if you can get a well priced short sale and/or negotiate the sales price to below comparative values.

 

[Zebo]

Selling the house will cost me 10% of its value or $20k.

Hehe - you must have never had an FHA inspector come in. New roof, new carpet, tiles lose, need new, duct cleaning etc, etc. Then closing costs for buyer. Good luck though.

 

[PrinceofWands]

He's a total idiot, with the sole exception being the investment thing. Homes are not an investment, and should never be seen as such. Other than that, he's a frigging rock.

It costs me about $200/mo in property taxes for my house (with some minor expenses randomly for repairs). Find me someplace I can rent for that. Even when it was mortgaged it was only a few hundred a month because it's an inexpensive area and was purchased outside of any bubbles. What I save by owning allows me to basically not care in the least what I earn at a job since even minimum wage can easily support me.

The key is: don't buy in a bubble, and don't buy in an expensive area. As long as you don't pay overinflated prices you'll be able to pay off the house quickly and lose the single major expense of your life. Once you have it free and clear (as long as it's not ridiculously priced so as to incur major taxes) you're basically safe for the rest of your life. That security is worth infinitely more than any amount of money.

That doesn't even begin to explore the true strengths of home ownership, which are largely mental and emotional.

 

[Zebo]

I think if you had the down payment funds (hard to find those 5% down loans, though) a good chance to stay employed in one place, and can qualify for the current 5% interest rates, it is a good time to buy, especially if you can get a well priced short sale and/or negotiate the sales price to below comparative values.

Best are fixers. I like em' "as is" that needs everything replaced, holes in walls, etc, more the better which no federal aided financing will cover and rate is higher. But that's immaterial post inspection where it can be refinanced VA/FHA. It's nice to start with 50-100K equity if you know what you're doing.

 

[PJABBER]

Best are fixers. I like em' "as is" that needs everything replaced, holes in walls, etc, more the better which no federal aided financing will cover and rate is higher. But that's immaterial post inspection where it can be refinanced VA/FHA. It's nice to start with 50-100K equity if you know what you're doing.

I love those as well! My first couple of houses, when I was pretty low on the income scale, were well located, super strong structurally (one was built by an Italian stone mason and had 2-3 foot thick walls!) but had horrible interior eye appeal. Six months of sweat equity (I was working 50 - 60 hours a week already,) working nights and weekends with teardown, re-plastering, refinishing floors, laying linoleum, wallpapering, laying carpet and paying a few contractors for things like electrical and plumbing for a new bathroom and knocking a new window in and I was set!

These days I am too busy and too lazy. And it is just as easy to find properties in better condition where there is not as much work required.

You just have to see the inner beauty!

 

[HeXen]

I pay monthly for my house about the same as the cheapest rent in my area.
I can do with my property as i want, but i have to fix what gets broken, both have ups and downs but i'd rather not have to swing on some landlords nuts or be stuck on a lease, listen to em complain or enter my place when i'm not home so they can fix something...many do btw, legal or not.

 

[Zebo]

I love those as well! My first couple of houses, when I was pretty low on the income scale, were well located, super strong structurally (one was built by an Italian stone mason and had two foot thick walls!) but had horrible interior eye appeal. Six months of sweat equity (I was working 50 - 60 hours a week already,) working nights and weekends with teardown, re-plastering, refinishing, wallpapering, laying carpet and paying a few contractors for things like electrical and plumbing for a new bathroom and I was set!

These days I am too busy and too lazy. And it is just as easy to find properties in better condition where there is not as much work required.

You just have to see the inner beauty!

Sounds like a nice place. That's pretty crazy working yourself though. Two weeks and 6 laborers would have been cheaper...cost of capital, your time, your frikken back makes these not one man operations I am in a couple right now since I won't build on lots I have and also have to keep my full time girl busy and she does it all. It's wonderful to have woman running the show -they know what sells, and she in particular is a great manager of people and very good with regs.


PS I do 'high tech' stuff like electrical, new water heater, new faucets and give pointed advice. My style is such that she better have one solution though before coming to me. I hate having to micromanage and let her know it. Lazy^2

 

[Zebo]

dpost

 

[PJABBER]

Sounds like a nice place. That's pretty crazy working yourself though. Two weeks and 6 laborers would have been cheaper...cost of capital, your time, your frikken back makes these not one man operations I am in a couple right now since I won't build on lots I have and also have to keep my full time girl busy and she does it all. It's wonderful to have woman running the show -they know what sells, and she in particular is a great manager of people and very good with regs.

It was a big house and I made it into a legal two family. My girlfriend went in with me for the purchase and helped me out on weekends. (There was a worker! She was a physician's assistant and held down three jobs. Never put in less than 60 hours a week.) Some skilled friends helped out once in a while. Good for advice, too.

Hey, if you have no money you still have your time! And I was keeping in pretty good shape as a very active infantry officer in the Army Reserve then so physical labor did not bother me much.

Downside was sleeping in a construction site for all those months and wallpapering (which I swear I will never do again.)

Upside is that we made enough money on the sale that she was able to finally finance going to med school and I got to buy a really nice place with my next relocation.

Funny how working on something like that connects you to it. It is located on the NE coast in a place around 300 miles from where I live now and I still drive by it if I am passing through the area. It was up for sale one time and when I got a chance to see it all of the work I did was still there. Including that damn wallpaper.

 

[DrPizza]

I disagree with that analyst. Rent: if you rent, you rent for the rest of your life. What's the life expectancy now? Close to 80? Let's go with a "you bought too much house" 30 year mortgage: 30 years and you have 100% equity in your home.
And let's say that your mortgage + taxes would be 1500 per month, while comparable rent in your area is 1000 per month.

Assuming 8% interest, that the analyst used, and assuming you invest the $500 per month, you'll have $ 294,510.21 saved after 20 years. (Woohoo) Wait a second though - didn't I assume a 30 year mortgage? Why did I stop after 20 years? Because you're an idiot if you don't think that rent is going to go up. I think it's even pretty generous to say that it would take 20 years before the rent was $1500 instead of $1000; that's only a $25 increase per year. And, that total amount saved goes on the incorrect assumption that the landlord would wait 20 years and raise the rent $500 all at once. However, the renter is going to be paying more than the buyer during the next 10 years. And, after that point, the buyer is going to have to pay only for insurance & property taxes, while the renter has to pay more and more money as the rent goes up for the last 30 years or so of his life.

But, go ahead and follow this analyst's advice. I own two houses; the one I live in & the one I rent out. Both will be paid off many years before I retire. From that point on, what I make in rent on the one house will easily cover taxes and insurance on both houses. Thus, I will have only food and utilities to pay for. And, by that point, I should have solar to take care of a huge chunk of the utilities. Oh, and fuel for my fishing boat. I've gotta pay for that too.

 

[Zebo]

It was a big house and I made it into a legal two family. My girlfriend went in with me for the purchase and helped me out on weekends. (There was a worker! She was a physician's assistant and held down three jobs. Never put in less than 60 hours a week.) Some skilled friends helped out once in a while. Good for advice, too.

Hey, if you have no money you still have your time! And I was keeping in pretty good shape as a very active infantry officer in the Army Reserve then so physical labor did not bother me much.

Downside was sleeping in a construction site for all those months and wallpapering (which I swear I will never do again.)

Upside is that we made enough money on the sale that she was able to finally finance going to med school and I got to buy a really nice place with my next relocation.

Funny how working on something like that connects you to it. It is located on the NE coast in a place around 300 miles from where I live now and I still drive by it if I am passing through the area. It was up for sale one time and when I got a chance to see it all of the work I did was still there. Including that damn wallpaper.

I still drive by places I built (in fact I have to because I provided 2 year warranty and customers like to niggle) and It's great to see em.. If I had to life all over I'd probably skip school and my brief professional career and been a builder from day one. Very gratifying plus it happens I'm good at it. I design my own houses on computer even though I could buy plans for $400. It's just fun through and through. Only issue is dealing with scumbag subs.

 

[Saga]

Look at the video... the guy is a loser who lives in his mom's basement.

Two scenarios:
I want to spend $1000 a month on a place to live for the the next 10 years.

Option 1: I rent for $1000 a month for ten years. At the end of ten years I walk away with nothing.

Option 2: I buy a $185,000 house using a USDA no money down loan at 5% interest. My payment is approx. $1,150 a month. (that includes taxes and insurance) However, thanks to the mortgage interest deduction I save $150 a month on federal taxes thus making my effective monthly payment $1000.

At the end of 10 years my house is now worth approx. $200,000 (based on 1% appreciation per year)
And my loan balance is $150,000.

Selling the house will cost me 10% of its value or $20k.

So selling the house after 10 years will leave me with $30,000

I think I'll take option 2, thank you

If only any of this could be realistically put on a spreadsheet. Even in a brand new house if you haven't spent $20,000 or more in 10 years on repairs, upgrades, and renovations you must have bought a house made out of moonbase material.

 

[PrinceofWands]

If only any of this could be realistically put on a spreadsheet. Even in a brand new house if you haven't spent $20,000 or more in 10 years on repairs, upgrades, and renovations you must have bought a house made out of moonbase material.

What could you possibly be upgrading/repairing with those kinds of costs??

I doubt if more than that has been spent here in 20 years; and that includes adding a heat pump and ducting (replacing baseboard heaters). I've also completely remodeled a bedroom, and extensively remodeled the kitchen and the family room. It's just not that expensive to do most things, as long as the place was WELL constructed to begin with.

 

[Zebo]

If only any of this could be realistically put on a spreadsheet. Even in a brand new house if you haven't spent $20,000 or more in 10 years on repairs, upgrades, and renovations you must have bought a house made out of moonbase material.

Realty fee alone is gonna cost him $12,000 - (unless he's a fool and wants to sell himself) so that leaves you with $8000 for 10 years. LOL I just had shake on my roof replaced with Fiber and I get builders prices - $22,000.

Then other repairs and closing costs. No way 10%. period.