"Starter homes?"

[Capt Caveman]

The 3% doesn't include the tax benefits of ownership.

 

[dullard]

Originally posted by: Capt Caveman
The 3% doesn't include the tax benefits of ownership.

Nor does it include the cost of financing the home purchase (-6% at the moment). The tax benefits are only on that -6%, making it about -4%.

 

[Electric Amish]

We bought the house that we could afford at the time. We were done with renting, wanted a garage and wanted the tax break. Now, 12 years later, we are still in the same POS house.

Lots of things have contributed to us not moving, mostly it was moving from a 2-income to a single income when my wife became sick. If this had not happened, we would probably been outta this house within 5 years.

 

[zinfamous]

Originally posted by: AgaBoogaBoo

Originally posted by: zinfamous
If you don't see a home as an investment, then it's probably best that you don't buy one.

Maybe it's our terminology then? I think of an investment as something to grow your money with. A home is a place you live, what does it matter if the value goes up or down? My thought is that if you purchase a home with the idea of living in it no matter what happens to the external (market) value, you will have less to worry about.

Basically, I'm asking why a home should be purchased as an investment and not simply as a place to live. If people had done this in California, even if the value drops, what does it matter? Their home is their home and if they didn't get an ARM, nothing will change except what people say about their home.

Well, I think you should always consider both aspects, and I do agree with you. the thing is, you can make money off of your home with no intent of moving away.

Likewise, it's important to consider the value and condition of your home in the event that you do need to move (new job, all the other issues that confront you in life) sometime in the future.

Home values appreciate, so you never want to do anything to lessen the value. It's important to do what you can to maximize the appreciation.

 

[ponyo]

Originally posted by: dullard

Originally posted by: rivan
I've had totally the opposite experiences. It might be that I got lucky, but both of those statements are completely the opposite of my experiences.

You are looking only at a one time housing boom and a rare but occasionally occuring stock market slide. These two events just happened to occur together (they are not independent events since people took money from the internet stock boom and put it into the housing boom).

I am looking at all of history of homes and stocks in the US. Over history, housing has typically returned nearly 3% on the investment while stocks have typically returned nearly 10%. And that 3% number doesn't include the massive maintenance required for a home vs minimal overhead costs for many stocks.

Remember, the housing market just lost 14% in the latest reports and is showing no signs of turning around. You got lucky. You bought just before the boom (at a housing bust in the late 1990s from the sound of your post) and it looks like you sold at the one massive peak that housing has ever had (mid 2000s from the sound of your post). That almost certainly won't happen again in your lifetime.

The one good thing about a home is that it is one of few legal investments where you can invest very little and buy a lot (buying on margin). That is great in times when housing is doing well. We saw that happen (lots of buying on margin) in the 1920s with the stock market. We all know what happened shortly later. Housing is extremely risky if bought with such high margins as most people do. So you have extremely risky, high maintanence fees, and a meager 3% return (just about even with inflation). Not a good investment. Yes, it is an investment, just not a good one historically. It would be very short-sighted to look at just the one housing boom, and to ingore history and the current housing bust.

I also take exception to your earlier comment that housing prices are now low. Yes, they are a bit off the peak, but they certainly aren't low. Everyone in this thread should take 4 minutes to watch this.

:thumbsup: well said.

 

[Aquaman]

Originally posted by: ShawnD1

Originally posted by: Aquaman
around here it's more like starter condo............ $300K+

In Edmonton, and probably a lot of other cities, a condo is as expensive as a house that is twice as big. On top of the mortgage, there's also a building fee, so the condo is actually more expensive.

The price is that high because people are willing to pay it, but why are people paying this much? It's like having a choice between eating a steak or eating dog shit, and choosing to eat the dog shit.

Problem is the median house price in Vancouver is around $600K........... so most first time buyers don't really have a choice but to buy a condo or a townhouse.

Cheers,
Aquaman

 

[Jeff7]

Originally posted by: dullard
The average length of time a person stays in the first home is 5 years. So, that means several things:

Wow, only 5 years? Damn....

My grandparents, on both sides of the family, stayed in the first place they ever bought, so like, I don't know what that'd be, 50+ years? My maternal grandmother also was willed the house she was born in, and still has it. The house had numerous additions over the years, but the "base" parts of it are over 100 years old.

The house my parents own, they've had for 22 years, and will likely be there a few years longer.


I would see myself getting some kind of rented place until I've found a region I definitely like, as well as a stable job that I could spend a long time at. Moving around is too much of a hassle - unless I convert totally to Buddhism and do away with all my worldly goods.

 

[alkemyst]

Originally posted by: dullard

Homes are investments, but they are usually poor investments.

Historically that is a pretty ignorant statement.

If you are talking only towards high-yield investments then homes are more like the bond market. Slow and steady usually.

It's a rarity that a home ever returns less than one put in and never appreciates.


Now starter homes are designed just as that. Today's market is a bad example, but normally owning a home trumps paying rent everytime. While paying on the smaller home (usually for a single person or a couple)...one keeps that entire chunk of change plus the appreciation. They can keep moving that and upgrade. It's like how many can still do with used cars and boats. Take baby steps up in size and quality.

There is no real definition for a starter home, for some it may be a $45k condo and for others a $1MM beach home.

When it comes time to retire, people move to retirement homes...these are often smaller, but usually the same price or more than the house they are leaving.

 

[Slew Foot]

Originally posted by: alkemyst

Originally posted by: dullard

Homes are investments, but they are usually poor investments.

Historically that is a pretty ignorant statement.

If you are talking only towards high-yield investments then homes are more like the bond market. Slow and steady usually.

It's a rarity that a home ever returns less than one put in and never appreciates.


Now starter homes are designed just as that. Today's market is a bad example, but normally owning a home trumps paying rent everytime. While paying on the smaller home (usually for a single person or a couple)...one keeps that entire chunk of change plus the appreciation. They can keep moving that and upgrade. It's like how many can still do with used cars and boats. Take baby steps up in size and quality.

There is no real definition for a starter home, for some it may be a $45k condo and for others a $1MM beach home.

When it comes time to retire, people move to retirement homes...these are often smaller, but usually the same price or more than the house they are leaving.

No they dont, the payments for the first couple years are mostly interest, you dont crap back from interest. And nowadays, you get to watch your house take a crap in value.
The stock market is for investing, houses are for living in. Housing is at best a forced savings plan with high maintenance costs and a 3%/yr return. Quit thinking 2000-2006 is normal.

 

[Mo0o]

If you have the down payment, it's much smarter than renting.

 

[spittledip]

our starter home will be our permanent home

 

[bobcpg]

Really, look into the return on investment on a home. You do not break even for 6-10 years. You really need to take into account Taxes, Closing cost, Inside and outside maintenance. When you compare it to renting and putting the difference in another investment it may surprise you. I have been looking for a house for 6 months now, you could say my "starter home". Unless I can get a great deal there is really no incentive for me if I do not plan on living there at least 6-10 years.

Of course this is my situation in my area. Yours may be different.

 

[Special K]

Originally posted by: Mo0o
If you have the down payment, it's much smarter than renting.

I question the usefulness of this thread because so much of it depends on where you live, and what rental prices are like compared to mortgage + property taxes + maintenance + homeowner's insurance + energy prices.

The statement I quoted above can't be universally applied to everyone; I already linked to a very detailed NYT rent vs. buy calculator in my previous post, and the results show that it does not always make sense to buy.

 

[thomsbrain]

Originally posted by: zinfamous
If you don't see a home as an investment, then it's probably best that you don't buy one.

Your personal home is a liability, not an investment. Does your home bring in income? No? Does it cost you tons of money in interest, upkeep, and taxes? Yes? Then it's not an investment.

It's value may rise or fall, but it will remain relatively constant compared to similar homes. So when it comes time to move, you aren't going to realize any "profit" unless you accompany your move with a blow to your standard of living or take the opportunity to make significant upgrades in hopes of increasing the value beyond the cost of the upgrades. In which case the upgrades were the investment, not the home.

Your grandparents aren't rich because they bought their $400,000 house for $4,000 in 1950. If they sell it, they still need to buy another $400,000 house to maintain their standard of living. In other words, they have realized zero return on their "investment." And if they'd made a true investment (say, index fund) of $4,000 in 1950, they'd probably be sitting on several million dollars in actual wealth. They could sell the real investment and have the millions, and not be forced to immediately use those millions to buy something else of equal value. It's money that generates money that you can live on. A house doesn't generate shit. It sucks money up.

There are many reasons to buy homes, just as there are many reasons to buy cars. I'm working to buy a home of my own as fast as I can. But value as an "investment" isn't one of the reasons I'll buy one.

 

[Special K]

Originally posted by: thomsbrain

Originally posted by: zinfamous
If you don't see a home as an investment, then it's probably best that you don't buy one.

Your personal home is a liability, not an investment. Does your home bring in income? No? Does it cost you tons of money in interest, upkeep, and taxes? Yes? Then it's not an investment.

It's value may rise or fall, but it will remain relatively constant compared to similar homes. So when it comes time to move, you aren't going to realize any "profit" unless you accompany your move with a blow to your standard of living or take the opportunity to make significant upgrades in hopes of increasing the value beyond the cost of the upgrades. In which case the upgrades were the investment, not the home.

Your grandparents aren't rich because they bought their $400,000 house for $4,000 in 1950. If they sell it, they still need to buy another $400,000 house to maintain their standard of living. In other words, they have realized zero return on their "investment." And if they'd made a true investment (say, index fund) of $4,000 in 1950, they'd probably be sitting on several million dollars in actual wealth. They could sell the real investment and have the millions, and not be forced to immediately use those millions to buy something else of equal value. It's money that generates money that you can live on. A house doesn't generate shit. It sucks money up.

There are many reasons to buy homes, just as there are many reasons to buy cars. I'm working to buy a home of my own as fast as I can. But value as an "investment" isn't one of the reasons I'll buy one.

Good points. :thumbsup:

 

[Xavier434]

Originally posted by: thomsbrain

Originally posted by: zinfamous
If you don't see a home as an investment, then it's probably best that you don't buy one.

Your personal home is a liability, not an investment. Does your home bring in income? No? Does it cost you tons of money in interest, upkeep, and taxes? Yes? Then it's not an investment.

It's value may rise or fall, but it will remain relatively constant compared to similar homes. So when it comes time to move, you aren't going to realize any "profit" unless you accompany your move with a blow to your standard of living or take the opportunity to make significant upgrades in hopes of increasing the value beyond the cost of the upgrades. In which case the upgrades were the investment, not the home.

Your grandparents aren't rich because they bought their $400,000 house for $4,000 in 1950. If they sell it, they still need to buy another $400,000 house to maintain their standard of living. In other words, they have realized zero return on their "investment." And if they'd made a true investment (say, index fund) of $4,000 in 1950, they'd probably be sitting on several million dollars in actual wealth. They could sell the real investment and have the millions, and not be forced to immediately use those millions to buy something else of equal value. It's money that generates money that you can live on. A house doesn't generate shit. It sucks money up.

There are many reasons to buy homes, just as there are many reasons to buy cars. I'm working to buy a home of my own as fast as I can. But value as an "investment" isn't one of the reasons I'll buy one.

Well, I don't completely disagree with you but think of it this way. Homes can be investments, but they just have different rules tied to them in the sense that you always need at least one unless you plan to live on the street or in an apartment after you sell. However, like all investments, you will not make money unless you spend your money wisely. For example, one can go buy a home in South Florida in an area which is in the middle of development. 5-10 years later the odds of the value going up is very likely. While its value was going up, similar houses in the surrounding area are going up too just like you said.

However, you are not limited to buying your next house in that same area now are you? You could move 3 hours north of South Florida and all sudden you can purchase a home of the exact same quality for a fraction of the price of your old home. This can either be treated as a short cut to paying off your mortgage or it can leave you with a nice profit. In any case, the end result is exactly the same as any other investment in the sense that you went through a process involving a purchase that went up in value and you are now left with profit. The only downfall to this strategy is that you eventually run out of places where you can buy a cheaper home of same quality so it really only works a few times, but that's ok.

I 100% agree with you in the sense that there are better ways to make money through investing.

 

[waffleironhead]

Starter home=buying the home you can afford now. Then upgrading to a bigger/better house when you can afford more. Why is that so hard to understand. The house I am in now is far from ideal, but
after a few years hopefully my income will rise and I will be able to afford better housing.

 

[alkemyst]

Originally posted by: Slew Foot

Originally posted by: alkemyst

Originally posted by: dullard

Homes are investments, but they are usually poor investments.

Historically that is a pretty ignorant statement.

If you are talking only towards high-yield investments then homes are more like the bond market. Slow and steady usually.

It's a rarity that a home ever returns less than one put in and never appreciates.


Now starter homes are designed just as that. Today's market is a bad example, but normally owning a home trumps paying rent everytime. While paying on the smaller home (usually for a single person or a couple)...one keeps that entire chunk of change plus the appreciation. They can keep moving that and upgrade. It's like how many can still do with used cars and boats. Take baby steps up in size and quality.

There is no real definition for a starter home, for some it may be a $45k condo and for others a $1MM beach home.

When it comes time to retire, people move to retirement homes...these are often smaller, but usually the same price or more than the house they are leaving.

No they dont, the payments for the first couple years are mostly interest, you dont crap back from interest. And nowadays, you get to watch your house take a crap in value.
The stock market is for investing, houses are for living in. Housing is at best a forced savings plan with high maintenance costs and a 3%/yr return. Quit thinking 2000-2006 is normal.

huh...I am part of a Fortune 500 / Top 10 homebuilder. please see my comment above "Today's market is a bad example"

kthnx.

Interest does go to the bank yes, but I have not known of anyone expect in recent times that didn't recoup all of that back on the resale not to mention most average americans can write off nearly all of it / to enough that it makes it much cheaper than renting.

It's obvious you are just speculating how you think things work though. I love you worst case scenarios of only a 3% return and high maintenace costs while implying the stock market must be much better than that.

Go ask your dad again the right answer.

 

[alkemyst]

Originally posted by: bobcpg
Really, look into the return on investment on a home. I do not break even for 6-10 years. I really need to take into account Taxes, Closing cost, Inside and outside maintenance. When I compare it to renting and putting the difference in another investment I was surprised. I have been looking for a house for 6 months now, you could say my "starter home". Unless I can get a great deal there is really no incentive for me if I do not plan on living there at least 6-10 years.

Of course this is my situation in my area. Yours may be different.

fixed

 

[IHateMyJob2004]

Originally posted by: ShawnD1

Originally posted by: zinfamous
If you don't see a home as an investment, then it's probably best that you don't buy one.

If people could get their heads out of their asses and stop trying to jump from house the house, the US wouldn't be in recession right now.

edit:
I do like the idea of a starter house. If you're single or married with no kids, a really small house can save a lot on rent. I wouldn't expect to make money with such a scheme, but not losing as much is still good.

You can not be that stupid.

 

[preslove]

Originally posted by: dullard



I am looking at all of history of homes and stocks in the US. Over history, housing has typically returned nearly 3% on the investment while stocks have typically returned nearly 10%. And that 3% number doesn't include the massive maintenance required for a home vs minimal overhead costs for many stocks.

A home is a good investment if you live in it or if you rent it out. If you live in it, you don't have to pay rent & build equity. If you rent it, someone else builds your equity. You're right, though, that just buying real estate for the appreciation is a bad investment.

 

[Special K]

Originally posted by: preslove

Originally posted by: dullard



I am looking at all of history of homes and stocks in the US. Over history, housing has typically returned nearly 3% on the investment while stocks have typically returned nearly 10%. And that 3% number doesn't include the massive maintenance required for a home vs minimal overhead costs for many stocks.

A home is a good investment if you live in it or if you rent it out. If you live in it, you don't have to pay rent & build equity. If you rent it, someone else builds your equity. You're right, though, that just buying real estate for the appreciation is a bad investment.

But what good is $500k of equity stuck in a house? You can't realize any of it unless you sell, but then you still have to find another place to live, which would involve lowering you standard of living and/or moving to a new location with lower housing prices.

 

[Svnla]

Originally posted by: Special K
I ran the numbers on this very detailed NYT rent vs. buy calculator:

link

and basically what I realized was that it will *never* make sense for me to buy a house from a financial perspective. I would need some reason other than financial gain to want to buy a house.

It makes sense when I think about it - right now, I pay ~$700/month for rent. There is absolutely no way I could find a mortgage with that monthly payment for any place worth living in around here, not to mention the cost of homeowner's insurance, repairs/maintenance, property taxes, and higher utility bills. If I were to continue to rent and invest the difference in index funds, I would come out far ahead financially than if I bought a house as an *investment*.

Then again, prices around here don't seem to go through large swings, so there probably won't be an opportunity to buy a house and see it appreciate 20% per year like some have done.

Like I said though, owning a house is about more than what will net you the most money in the long run.

Interesting link.

Rents around here are from $500 <decent> to $800 <luxury> and new houses in good areas are around $180-200K. From your link, it will never benefit me as a home owner.

 

[sactoking]

Originally posted by: Special K

Originally posted by: preslove

Originally posted by: dullard



I am looking at all of history of homes and stocks in the US. Over history, housing has typically returned nearly 3% on the investment while stocks have typically returned nearly 10%. And that 3% number doesn't include the massive maintenance required for a home vs minimal overhead costs for many stocks.

A home is a good investment if you live in it or if you rent it out. If you live in it, you don't have to pay rent & build equity. If you rent it, someone else builds your equity. You're right, though, that just buying real estate for the appreciation is a bad investment.

But what good is $500k of equity stuck in a house? You can't realize any of it unless you sell, but then you still have to find another place to live, which would involve lowering you standard of living and/or moving to a new location with lower housing prices.

But what good is $500k of cash stuck in a bank? You can't realize any of it unless you go the an ATM but then you still have to replace it with more cash, which would involve spending less and/or getting a job at Taco Bell.

 

[dullard]

Originally posted by: sactoking
But what good is $500k of cash stuck in a bank? You can't realize any of it unless you go the an ATM but then you still have to replace it with more cash, which would involve spending less and/or getting a job at Taco Bell.

An investment is something that you can sell quickly if the price reaches a high point. Thus, you take your profit and buy something else cheap to get even more gains.

Try doing that with a house that you live in.

You typically never sell high on a house just because it is high. And if you do, you have to live somewhere so you just end up buying something else at it's high - which negates your gain.