Is Real Estate Actually a Good Investment on Average?
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@Obsolesce said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 a house is not automatically an asset. In most cases when buying a house with a mortgage, it is considered a liability. It can take a long time to become an asset, if ever at all.
Perhaps this is a location issue? I don't see this at all in the UK.
In most simple terms. I can pay £1,000 mortgage and buy my house brick by brick, raising my percentage ownership monthly, or I can pay a landlord £1,000 per month for them to use the cash I pay them to own more of their property.
In the first example, I am going to eventually own the house. At the end of the term it may be lower value, higher value, or the same value, but it will be worth some value. In the second example, I have nothing. The landlord does.
Sure, there are probably edge cases where this isn't true. But, if you know you will be somewhere for 5 - 10 years the best option is to own. Renting is best when you are mobile. If I know I want to be in London for 12 months, then Wales, then Germany, then France... yada yada, then owning makes no sense. But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
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@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
Pretty much, shit happens.
If you are worried about possible future long term sick, get ASU insurance.
If you are worried about future divorce, well that sucks. Its still better to have 50% of a house than 0%.There are lots of real world examples of shit happening. It still doesn't change the fact that renting is paying somebody else mortgage, when you could have your own and 'hope' to gain from it.
Everything has risk.
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
Pretty much, shit happens.
If you are worried about possible future long term sick, get ASU insurance.
If you are worried about future divorce, well that sucks. Its still better to have 50% of a house than 0%.There are lots of real world examples of shit happening. It still doesn't change the fact that renting is paying somebody else mortgage, when you could have your own and 'hope' to gain from it.
Everything has risk.
Yeah, but a shitty investment such as a single family home isn't worth that risk. It's a lot more financially responsible to rent your home and invest your capital in something better. Something that is not coupled to your living arrangements. Something you can sell and buy when the opportunity is right, not when you want to move.
If you like real estate there are plenty of things to own. Apartment buildings, commercial real estate for example.
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@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
Pretty much, shit happens.
If you are worried about possible future long term sick, get ASU insurance.
If you are worried about future divorce, well that sucks. Its still better to have 50% of a house than 0%.There are lots of real world examples of shit happening. It still doesn't change the fact that renting is paying somebody else mortgage, when you could have your own and 'hope' to gain from it.
Everything has risk.
Yeah, but a shitty investment such as a single family home isn't worth that risk. It's a lot more financially responsible to rent your home and invest your capital in something better. Something that is not coupled to your living arrangements. Something you can sell and buy when the opportunity is right, not when you want to move.
If you like real estate there are plenty of things to own. Apartment buildings, commercial real estate for example.
The prices in the UK for renting are above what you would pay for mortgage payments. You are spending far more renting than you would not renting. That makes no sense.
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
Pretty much, shit happens.
If you are worried about possible future long term sick, get ASU insurance.
If you are worried about future divorce, well that sucks. Its still better to have 50% of a house than 0%.There are lots of real world examples of shit happening. It still doesn't change the fact that renting is paying somebody else mortgage, when you could have your own and 'hope' to gain from it.
Everything has risk.
Yeah, but a shitty investment such as a single family home isn't worth that risk. It's a lot more financially responsible to rent your home and invest your capital in something better. Something that is not coupled to your living arrangements. Something you can sell and buy when the opportunity is right, not when you want to move.
If you like real estate there are plenty of things to own. Apartment buildings, commercial real estate for example.
The prices in the UK for renting are above what you would pay for mortgage payments. You are spending far more renting than you would not renting. That makes no sense.
See this is the thing people are trying to explain to you. Math doesn't work that way.
You are very confused if you think owning a home as an investment is a smart thing.
Owning a home is fine. Thinking of it as an investment is the issue of this topic.
I bought my house for $228,000 in 2016. I paid 10% down and the rest was a loan. I refinanced last year to take advantage of the lower interest rate and to drop my term to 20 years. I was 5 years into a 30 year term, so I gained 5 years on the payback also.
I don't' have my original amortization schedule handy, but for my refi I do.
My refi has an original balance of $205,986.
After making a payment of $1,168.34 for 240 months (20 years) I will have paid $280,401.60.This means before any other expenses or values are calculated, I will have lost $74,415.60 over the term of this loan.
This is a shit ass way to start an investment return.
By the way, I only put 10% down on the original loan in 2016, because I knew the house needed remodeled. I drop approximately $25,000 to remodel everything in 2016.
So that puts me down $100,000 at the 20 year mark.
I converted the half bath to a full master bath in 2019 for $11,000.
So that puts me down $111,000 at the 20 year mark now.
I gutted 2 rooms and reinsulated them in the last 6 months for ~$4,000.
So that puts me down $115,000 at the 20 year mark now.
That means for my house to be a value as an investment, assuming I have zero other house only expenses (aka expenses that I would not also have as a renter), I would need to sell my house for $228,000 + $115,000 = $343,000 in 2016 adjusted dollars just to break even on my investment.
Edit:
Neglected a huge cost of owning a house in the U.S., property taxes. That would bring that $115,000 significantly higher as I currently pay ~$6,000 per year in property taxes. That comes to $120,000 over a 20 year loan.
So now I need to sell this house in 2041 for $463,000 (in 2016 dollars) just to break even.
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@JaredBusch said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
@Pete-S said in Is Real Estate Actually a Good Investment on Average?:
@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
But, if I know I am going to be South East UK for at least a decade, owning is the only sensible financial choice.
Right, until you get sick long-term or have a divorce and you can't afford to pay your mortgage and you can't sell your house because nobody is willing to pay what you need to pay off your loans.
Renting is the SaaS of living arrangements.
Zero capital expense, zero risk, 100% agility.
Pretty much, shit happens.
If you are worried about possible future long term sick, get ASU insurance.
If you are worried about future divorce, well that sucks. Its still better to have 50% of a house than 0%.There are lots of real world examples of shit happening. It still doesn't change the fact that renting is paying somebody else mortgage, when you could have your own and 'hope' to gain from it.
Everything has risk.
Yeah, but a shitty investment such as a single family home isn't worth that risk. It's a lot more financially responsible to rent your home and invest your capital in something better. Something that is not coupled to your living arrangements. Something you can sell and buy when the opportunity is right, not when you want to move.
If you like real estate there are plenty of things to own. Apartment buildings, commercial real estate for example.
The prices in the UK for renting are above what you would pay for mortgage payments. You are spending far more renting than you would not renting. That makes no sense.
See this is the thing people are trying to explain to you. Math doesn't work that way.
You are very confused if you think owning a home as an investment is a smart thing.
Owning a home is fine. Thinking of it as an investment is the issue of this topic.
I bought my house for $228,000 in 2016. I paid 10% down and the rest was a loan. I refinanced last year to take advantage of the lower interest rate and to drop my term to 20 years. I was 5 years into a 30 year term, so I gained 5 years on the payback also.
I don't' have my original amortization schedule handy, but for my refi I do.
My refi has an original balance of $205,986.
After making a payment of $1,168.34 for 240 months (20 years) I will have paid $280,401.60.This means before any other expenses or values are calculated, I will have lost $74,415.60 over the term of this loan.
This is a shit ass way to start an investment return.
By the way, I only put 10% down on the original loan in 2016, because I knew the house needed remodeled. I drop approximately $25,000 to remodel everything in 2016.
So that puts me down $100,000 at the 20 year mark.
I converted the half bath to a full master bath in 2019 for $11,000.
So that puts me down $111,000 at the 20 year mark now.
I gutted 2 rooms and reinsulated them in the last 6 months for ~$4,000.
So that puts me down $115,000 at the 20 year mark now.
That means for my house to be a value as an investment, assuming I have zero other house only expenses (aka expenses that I would not also have as a renter), I would need to sell my house for $228,000 + $115,000 = $343,000 in 2016 adjusted dollars just to break even on my investment.
Edit:
Neglected a huge cost of owning a house in the U.S., property taxes. That would bring that $115,000 significantly higher as I currently pay ~$6,000 per year in property taxes. That comes to $120,000 over a 20 year loan.
So now I need to sell this house in 2041 for $463,000 (in 2016 dollars) just to break even.
Say somebody was renting your dwelling for 20 years from a landlord. They also would be paying $1,168 every month for 20 years. Where you are down $74,415, they are down $280,401.
Rent here in the UK is MORE than the cost of a mortgage. I'd get it if the renter was paying $400. They could take the other $768 and stick that somewhere with better interest than a house.
Owning may not be a great option, but its still better than renting. In 20 years you hopefully have a house you can sell worth at least $205,986. Then renter doesn't.
How is that better than owning where the rent cost == mortgage cost?
I can pay a bank 1,168 dollars every month for 20 years and hope to have a house I can sell for 200k+. Or, I can pay a landlord that money have after 20 years have sweet fuck all... hmmm, sure, I will rent.
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@JaredBusch said in Is Real Estate Actually a Good Investment on Average?:
That means for my house to be a value as an investment, assuming I have zero other house only expenses (aka expenses that I would not also have as a renter), I would need to sell my house for $228,000 + $115,000 = $343,000 in 2016 adjusted dollars just to break even on my investment.
This calculation is wrong in many aspects, and here are few big ones:
- You have not deducted cost of renting that house from you cash flow calculation (because if you haven't bought it, you would need to rent it if you wan't the same living standard)
- You can't say "$343K in 2016 adjusted dollars", because your payments are not in 2016., but accross 20+ years.
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@JaredBusch said in Is Real Estate Actually a Good Investment on Average?:
So now I need to sell this house in 2041 for $463,000 (in 2016 dollars) just to break even.
- Again - it is not "in 2016 dollars", because you have not paid all $463K in 2016.
- And if you do sell it in 2041. for $463K - that will mean that you have almost used it "rent free" for 25 years (not exactly, but I hope you understand what I mean)
P.S. I bet you will be able to sell it for $463K in 2041. - at least because of inflation.
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@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
@Obsolesce House is definitely an asset.
The most typicall form of asset.(Look at any balance sheet, and real estate is always in assets, where else would it be?)
Mortgage is liability.
https://biesingerfirejourney.com/house-asset-or-liability/
https://www.richdad.com/what-are-assets-and-liabilities
https://medium.com/the-investors-handbook/is-a-house-an-asset-or-a-liability-5c57ca3190bb
https://www.clevergirlfinance.com/blog/is-a-house-an-asset/
https://www.foreignersfinances.com/is-a-house-an-asset-or-a-liability/
https://www.cbsnews.com/news/is-your-house-an-asset-or-a-liability/
I can keep going if you want.
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@Obsolesce I can send you links that say that Earth is flat.
I have read "Rich Dad.. Poor Dad" book, and it is a good read, but the claim that "house is not asset" is exaggeration to explain his points.
Here is one normal link:
https://en.wikipedia.org/wiki/Asset
(look at Tangible assets, or CTRL+F "real esate")P.S. I am proffessional financial manager, so I am well educated about these topics
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
How is that better than owning where the rent cost == mortgage cost?
Because there are taxes, fees, sales overhead, maintenance, time value of money, liability, insurance, upkeep, etc.
You CAN make out better when the two are equal. You can also lose. Unless one is dramatically more than the other, and you know will always been, then you can't look at that number at all, that's not the whole picture, it's an under the hood component that is meaningless on its own.
Also, we can never assume that renting = mortgage. Typically, it is lower. Almost always. Anytime that renting becomes too expensive, people take out mortgages for the market to adjust. So you can safely assume that nothing you see today is meaningful and that over time, the rent will be lower than the mortgage rate. It has to be as a general average, it's how real estate works.
One of the biggest mistakes that people make with investing is looking at how something does "today" and assuming it will always do the same thing.
Investing in real estate "today" is similar to Bitcoin two months ago. It was going up and up, you "couldn't lose money". but logic and math said it was the worst time to invest. And guess what?
Buying at the peak is never a smart move from an investment perspective. If you make any argument to the contrary, you are missing the most basic concept of investing which is "buy low, sell high."
Yet almost everyone (and this is how the rich stay rich and the poor stay poor) gets emotional and tells each other that it is good to buy when things are the most expensive and to sell when things get rough. The average person literally will argue for buying high and selling low. Not when you state it that way. But all those hordes saying real estate is good today or that crypto was good a few months ago were arguing for exactly that.
People don't "see" the high and low when they are doing the buying and selling and generally do the opposite.
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@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
I have read "Rich Dad.. Poor Dad" book, and it is a good read, but the claim that "house is not asset" is exaggeration to explain his points.
Only sort of. Everything is an asset and a liability at some point. But houses are far more of a liability than most things. They are truly either depending on the circumstances.
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@Mario-Jakovina my numbers were quick off the cuff showing only a part of the reality.
Obviously, not all of the money is in 2016 dollars, but it a simple number we can work for point of example without being in the future.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Only sort of. Everything is an asset and a liability at some point. But houses are far more of a liability than most things. They are truly either depending on the circumstances.
If we want to be precise in finance (like you are when you talk about IT) - Nothing can be "asset and liability at some point".
Some things are assets (money, real estate, investments), and some other thing are liabilities (loans, account receivables....) -
@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
P.S. I bet you will be able to sell it for $463K in 2041. - at least because of inflation.
yeah......
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
I can pay a bank 1,168 dollars every month for 20 years and hope to have a house I can sell for 200k+. Or, I can pay a landlord that money have after 20 years have sweet fuck all... hmmm, sure, I will rent.
If that is how you look at it, then you are who we make our money on. Because that "logic" sounds great, it's a salesman's sound bite, but it's only part of the picture.
On the surface, it feels like an obvious truth. But as a real estate investor, I can tell you it's false and meant to mislead you into buying without investigating. Every agent will point it out and ignore all the risks.
ANY situation where that's the only thing you look at, means you aren't taking the discussion seriously. Nothing about home ownership / investing can be distilled to such a simplistic view. The costs and benefits are so largely not related to those numbers.
It's like with RAID 5. People try to sell RAID 5 (or used to) by trying to distract everyone from the real risk by talking about "drive failure", but drive failures were not the primary risk. They were A factor, not THE factor. But they sound easy to understand, so that's how you sell people. Make them feel like they can just understand one easy number and its easy for them to lie to themselves that it's an easy decision and that they don't have to understand financial math and risk.
But it remains a trick. The risks of the house are far and away different than you are pointing out.
Can the situation you mention exist? Yes, rare, but CAN exist. Have I ever seen it in real life, no. But it does exist once in a while. Can it be profitable? Yes, it CAN be. Is it likely? No, no part of it is likely to be true. Especially because the factors that make the one part true (rent being illogically high) forces the other to be untrue (that the investment in the house will grow instead of shrink.)
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@JaredBusch OK, but the wrong is to say it is in 2016 dollars - it is more accurate to say it is in "ca 2030 dollars". And that is a BIG difference.
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@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Only sort of. Everything is an asset and a liability at some point. But houses are far more of a liability than most things. They are truly either depending on the circumstances.
If we want to be precise in finance (like you are when you talk about IT) - Nothing can be "asset and liability at some point".
Some things are assets (money, real estate, investments), and some other thing are liabilities (loans, account receivables....)No, houses are truly both. Because they carry costs whether or not their are used as an asset. They are like a loan in some cases. You have to pay to hold them.
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@Jimmy9008 said in Is Real Estate Actually a Good Investment on Average?:
The prices in the UK for renting are above what you would pay for mortgage payments.
TODAY this is true. Unless that has always been true, then your logic doesn't hold. Looking at a momentary financial situation isn't a good way to invest for a lifetime.
