Every time a thread involving HOAs or bad neighbors comes up, it’s closely followed by the shrill screeching of people claiming that whatever bad behavior this is “lowers their property value.”
My personal feeling is that my home isn’t really an investment so much as it’s primarily somewhere that I live that I own, as opposed to pay to live there. It’s nice that when I sell it, I’ll likely get back all that I’ve paid in mortgage payments, and if I’m lucky, tax and insurance as well.
But that’s not the reason I bought the house. If I was solely concerned with making money, there are better investments than a house in the burbs that takes 20-30 years to come to maturity, and may or may not significantly appreciate in value over that time.
And if I’m concerned about my property value, the best thing to do about that is live somewhere that the sort of people who’d put cars on blocks can’t afford. Which I do. I live in a 42 year old subdivision without an HOA, and we have no garishly painted houses, cars on blocks or anything that people would say lowers anyone’s property values.
So my question is, are homes really investments, and more to the point, should they be considered as such by the average homeowner? Does this lead to strange behaviors and attitudes on the part of homeowners?
As usual, this question covers so much ground that the only possible answer is: “it depends.”
Historically, though, the trendline for large numbers of Americans in a variety of times and places is that homes are very good investments. And not merely good investments but the only investments that many people ever make. If their home does not appreciate they have nothing to fall back on. That’s what creates so much anxiety about protecting the value of their home.
It doesn’t matter if that is not true for you. It is true for a sufficient number of people.
Different people buy houses for different reasons. If your goal is to have a place to live and you don’t care about making a profit, that’s fine. For others, a home is a vital (sometimes only) component of their retirement portfolio. In that case, you would care very much about the property value.
For most people, this is not a yes/no question. Rather, for them, the question is: Is the house primarily an investment and secondarily a place to live, or is it primarily a place to live and secondarily an investment?
For some people, it is indeed a yes/no question: If you really don’t care about making a profit or taking a loss, then No, it is not an investment.
A CPA friend of mine lived for decades in rental property. When this question would come up in various conversations, he’d say “If a house is such a good investment, why don’t [various entities that are dedicated to investing and profiting from such] buy houses?” He was firmly of the belief that as investments go, houses were by and large poor options, and that their main value was as a place to live.
It’s an investment so long as you get more worth out of it than you put in. If you value having a dedicated shelter, then it’s easier to justify.
A mortgage is going to cost a lot no matter what. You have interest payments and taxes that can easily double or triple the total cost of a home + land, and the latter part of that doesn’t stop even after you’ve made the final payment. Don’t forget about home owners insurance!
If you plan to spend a long time in one location, then a home can potentially be a nice investment, so long as you take care of it, pay it off quickly and don’t end up eating huge property taxes. There are just too many variables…
Subtract what you would pay in equivalent rent to have a similar dwelling. I.e. if mortgage, property tax, etc. is $1800/mo. but equivalent living expenses to rent is $1200/mo. - then you are effectively investing $600/mo. to get a house. Do that for 20 to 25 years, you own a house, plus you’ve lived there. Then you sell a house that you own outright.
If the value has increased decently, you win. If you have to sell in the aftermath of the 2009 market melt-down, probably not good to be you.
In fact, one of the indicators of a “bubble” or overinflated market is when the cost to rent is significantly smaller than the cost to own. When they are close, then the market is probably reflecting real cost rather than speculation. People do buy as investment - they are called “landlords”. The trouble is home rental is so regulated and building maintenace is so complex that unless you’re talking large, usually conccrete, apartments (volume) the hands-on manangment has made house landlord a cottage industry.
Note that it also requires that rental rates be high enough to cover mortgage payments. A side-effect of rent control is often a shortage of apartments.
You want cheap, well-maintained, plentiful rental housing? Pick only two of those three choices.
Rent could be a little higher to cover risk that the occupants don’t look after
the property
the neighbourhood. (renters don’t yell at the people putting garbage, graffiti, burn out marks on the road… “)You will drive my rent up by making the risk seem higher !” doesnt make a resounding argument…
He may have a point, but I’ve seen articles about how some investors are buying up homes for cash nowadays. So at the moment, they may have value as investments.
From everything I hear, just recently a lot of homes are being purchased by investors - not by folk who intend to live in them.
I’ve long thought it silly for residents to discuss the “investment value” of their residences without acknowledging the imputed rent. It is so frequent for folk to talk as tho they should be able to live somewhere essentially free AND have the resale value increase higher than inflation/savings/other investments. Or - similarly, complain overly about their taxes, without acknowledging the possibility that the taxes they pay might well contribute significantly to their home maintaining/increasing its value. But heck, this is America where everyone wants something for nothing!
I’ve signed a contract to purchase my 3d home in 25 years. Each of my 1st 2 held their value, and I sold them for considerably more than I paid - approx 50% more for the fist home after 10 yrs, and maybe 60% after 13 yrs in the 2d. No idea what the calculation would be if I figured in inflation, improvements, etc. But they sure held their value better than my Lucent stock!
With my new home, we bought a well constructed home in a strong neighborhood, close to schools/shopping/transportation, in an established suburb. I’m confident the home will not go down significantly in value. But my wife and I plan on staying there longterm - being carried out in boxes. So we aren’t converned about turning an investment profit. Also, what improvements we make will be for our personal enjoyment, rather than for return on investment.
No if someone buys shoddy new construction in a paved over cornfield in the boonies, I’d be less confident that the value of that house would increase.
When we sold our last home, our living situation was somewhat unsettled due to work/school, so we needed to find someplace to park the proceeds. My wife and I are confident that the right home in the right neighborhood is at least as secure of an investment as just about any other investment we could identify, and we are comfortable having a good percentage of our net worth in our house.
(emphasis mine)
You’re double-counting there. If you’re subtracting out the equivalent rent, then that’s already covering the “plus you’ve lived there”.
It’s not a great move to buy a house that isn’t going to increase in value. You need to be pretty well off to consider something that expensive to be ‘consumable’. But you don’t have to buy a house just as an investment. That should be the icing on the cake.
A quite large number of homes in the Bay Area, where sales are booming, are bought with cash and are bought as investments - I think it is around 50%, and regular buyers are getting shut out by this.
However the OP has a flaw - not all investments are good investments. Since the value of a house will change with time, and since you sell it, not junk it, it is an investment by definition. There was an assumption that it was a good investment before - we might be a bit more careful now.
Oh dear; brings back memories of the 90s when the only conversation at dinner parties was how much my house is worth. That and discussing alternative routes and speed of getting there… Yawwwn.
I would say that the equity in your house is an investment. Even the accountant who says there are better investments is essentially agreeing that the house is an investment. Not all investments are made equal, but what defines them is the possibility that the value will appreciate over time. The quality of the investment depends on the appreciation - how likely and how much.
And that’s something that many people need to consider, because there are usually better places to invest money if that’s what you really want out of the property. Measuring the home’s value as an investment means looking at the alternatives and opportunity costs - what goes into the mortgage that could have gone into stock, for example? Even if real estate is a good investment, how diversified are your investments when you add the house in? Most people don’t think in those terms when they call the house an investment.
It’s still an investment even if you think of the property merely as a place to live. It’s still going up in value, and that’s something you can’t say about most of your other personal assets like clothes, furniture and cars (except, maybe, certain collectibles and antiques).
Property values covers more than just investment money.
So when people “that whatever bad behavior this is “lowers their property value.””, they aren’t just complaining that the house will not sell for as much. They’re also complaining that selling the house will take longer, and time is money.
But more importantly, they bought a house at a particular property value because the neighborhood is part of that property value. And shitty neighbors lower the property value because they lower the enjoyment of that house.
If you took identical houses on identical size plots of land, and put one of them between a chicken farm and a meth lab, and put the other one between a polite retired couple and a young professional, which would you rather live in? They both provide shelter and are in fact identical, but the property value of the former is much lower than that of the latter. The reason is because property values are high where people want to live.
Sure, the money is part of it, but property value is not just about money.
Obviously buying a home is an investment and, like any investment, the value can go up and down. The problem with a home is that if it goes down sufficiently in value you might not be able to sell it (i.e. you are underwater). People are use to assuming that houses will at least hold their value and maybe make enough to pay the costs of selling. There are many people out there that know that this is not true.
The only way that owning a home is not really an investment is if you can pay with cash and don’t really mind taking a loss when you sell, should that be necessary.
At 45 years old in 1999 I bought a steep lot in a nice area of the SF Bay Area, built a 4 story, 5000 sq ft architect-designed Tuscan-style house, lived in it for 5 years, and sold it for $250K more than I had put into it.
So is real estate a good investment? It is if you know what you are doing… but most people don’t have the know-how or financial resources to do what I did.
