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how did people get it in their heads that long housing is an investment
- Thread starter KINGOFSHORTS
- Start date
Quote from maxpi:
Buyers in California are having to bid above the asking price to get a house lately...
The thing about a house is you can live in the dang thing.. can't do that with paper investments... or metals....
Agreed 100%.
I also agree that this is one of the dumber threads on ET.
You are right and wrong. You can easily get rid of the bid-ask spread if you buy and sell without the slimy agents.
Let us do the math. A decent apartment costs $12000 a year in a decent suburb, and your mortgage + taxes +maintenance come to about $20000 a year, if you bought a modest house. Now, most will get back something like $4000 in Taxes. Now, you spent an extra $4000 owning a house, but you also build that much in equity approximately. So, you break even and you get a better life in a house than in an apartment, and you are also protected from inflation.
Now, this is how it was supposed to be, but then there were so many screw ups, as in very low interest rates, jacking up the home prices, and then rates going up on an inflated home price, greedy cities jacking up the taxes, greedy plumbers, carpenters etc charging insane amount for their work, greedy inspectors, appraisers jacking up the closing costs, greedy mortgage salespeople, and the worst of all, greedy agents making 6% on each house sold.
Let us do the math. A decent apartment costs $12000 a year in a decent suburb, and your mortgage + taxes +maintenance come to about $20000 a year, if you bought a modest house. Now, most will get back something like $4000 in Taxes. Now, you spent an extra $4000 owning a house, but you also build that much in equity approximately. So, you break even and you get a better life in a house than in an apartment, and you are also protected from inflation.
Now, this is how it was supposed to be, but then there were so many screw ups, as in very low interest rates, jacking up the home prices, and then rates going up on an inflated home price, greedy cities jacking up the taxes, greedy plumbers, carpenters etc charging insane amount for their work, greedy inspectors, appraisers jacking up the closing costs, greedy mortgage salespeople, and the worst of all, greedy agents making 6% on each house sold.
Quote from KINGOFSHORTS:
First the margin loan rate of 6% lets say for 30 years.
Second is the cost of insurance,taxes,fees,etc. another 3%
Maintenance/upkeep (ie: repairs) 1%
Total carrying cost over 30 years = 10% annually.
And I am not including the wide bid/ask spreads and fees etc.. when taking on a long position in housing.
Someone putting down 10% towards a 200,000K long position in housing will have taken a 10:1 leveraged position without the upside potential you get with a 10:1 leverage.
So you take the risk of 10:1 and you have to return 20% annually on your long position to at least break 10% a year.
And at the end if you want to unlock value on your equity you have to borrow on it and pay who knows what. So you get screwed anyhow.
You cant sell a position and cash in or hedge with calls or collect dividends etc.., its either sell the whole house or borrow against it.
Buy a home because you like it. ie: beachfront,nice place etc... and take a 15 year loan or less.
Housing can be a great investment. Obviously you'll get screwed buying near the top of a bubble, but these days it's easy to find rental props yielding 6-7% after taxes, insurance, maintenance and other costs. Along with that you have the possibility for capital appreciation and a hedge against inflation with very limited downside risk, as long as you're buying in a halfway decent area.
Much less risky than a buy n' hold stock portfolio, and it beats bonds hands down. Of course there's more nitty-gritty involved as well, and the vast majority of people don't have the kind of investment capital to do it properly. Buying levered and betting on price appreciation is not the way to go.
Much less risky than a buy n' hold stock portfolio, and it beats bonds hands down. Of course there's more nitty-gritty involved as well, and the vast majority of people don't have the kind of investment capital to do it properly. Buying levered and betting on price appreciation is not the way to go.
Quote from maxpi:
Buyers in California are having to bid above the asking price to get a house lately...
A clear sign of hysteria. There will be plenty of additional supply hitting the market when additional mortgages reset and bank supply hits the market.
The thing about a house is you can live in the dang thing.. can't do that with paper investments... or metals....
Statements like this are what got the bubble going in the first place.
Quote from Specterx:
Much less risky than a buy n' hold stock portfolio.
Unless you perform a detailed risk analysis, this is a blanket statemtent that may or may not be true.
Housing is a VERY illiquid asset and if you get stuck in it, you can be stuck for a long time. Liquidity risk is one of the most important risks to consider, or else we would all be trading pennies.
I think people need to look at all the charts that the returns over the last 10 years were not sustainable. It's called a bubble. Everyone was buying houses, everyone was paying 0% down, and so demand went up, prices went up. Now prices are down, granted it's a good time to purchase maybe as many have said. But with the weak consumer, who will drive house prices higher? Recovery will be slow.
buying on cash is a great investment because you significantly reduce your risk of ruin. no matter what happens, you have a place to live. sure, you need to pay taxes and insurance, but that adds up to a lot less than rent. you can survive on $10 an hour if you don't have to pay rent.
buying on a mortgage is a gamble. i don't mean gamble like playing slots. it's a gamble in the sense that everything needs to go right for the length of the mortgage (e.g., 30 years). you cannot have anything bad happen to you in between.
you make a down payment and pay your mortgage for 15 years. On the 16th year, you lose your job and you miss a few payments. the bank forecloses on you and you lose everything even though you've been paying for the first 15 years!
in which job and in which industry can you honestly say that you will be safe for the next 30 years? that's what you have to think about when you buy a house on morgage.
buying on a mortgage is a gamble. i don't mean gamble like playing slots. it's a gamble in the sense that everything needs to go right for the length of the mortgage (e.g., 30 years). you cannot have anything bad happen to you in between.
you make a down payment and pay your mortgage for 15 years. On the 16th year, you lose your job and you miss a few payments. the bank forecloses on you and you lose everything even though you've been paying for the first 15 years!
in which job and in which industry can you honestly say that you will be safe for the next 30 years? that's what you have to think about when you buy a house on morgage.