No, but since a house sits on a piece of land, and generally purchasing a house entails purchase of the land it’s sited on as well, that’s a distinction that generally doesn’t matter much. If the sale of house+land nets me a significantly increased sum X years after I purchased it, do I care if the profit is due to the land having appreciated instead of the house?
(It does matter in some special situations, of course, where ownership of the house does NOT entail ownership of the land under it, but those situations are rare.)
I skimmed the thread entries from last night and did a search just now and it doesn’t seem anyone tried to define what an investment is (apologies if I missed it). From investopedia:
So technically we can include purchasing something purely with the expectation that it will appreciate in value but really we should focus on the bolded text - an asset that is used to generate wealth, or IOW, some form of income over and above the current value of the asset.
Although people have discussed rental properties which would clearly qualify under this criterion, it’s less clear if a home or residence would. However I think the argument could be made that avoidance of costs could be considered a form of income and that there may be situations were home ownership would be superior to other forms of shelter in this respect even ignoring the issue of property values. That is not to say that the risk of capital loss can be ignored, but only that when it is weighed against other factors, home ownership may still represent a superior means of defraying the costs of providing shelter to oneself and one’s family.
I’ll admit that this might be a bit tenuous, but I wanted to throw it into the mix since at least in theory I think it’s a valid point.
While I do think that your standard “buying a house” situation isn’t much of a good investment, there’s a whole lotta math being left out in the equation. (I still think the investment in the S&P will have you out a bit ahead.) Assuming that we’re starting with $25,000 as a lump sum, while that $25K has become $175K for the house or $440K today, you also need to factor in the 42 years of rent paid. But then you have to factor in the house upkeep, taxes, and all the other costs involved in home ownership.
I still think the math will probably work out in the favor of the S&P investment when all the numbers are thoroughly crunched (probably at a reasonable margin–I still expect a difference of about $100K), but it’s not quite as simple as saying a house bought in X year at $25K is worth $175K today while the same investment made in the S&P would be worth $440K today, because you’re leaving out some important numbers that need to be considered to get a true full picture of the finances involved.
Of course a house is essentially an investment. Nobody claims it’s the best.
OTOH, how many banks will lend your average starting-out working class person 2 to 5 times their annual salary to play the stock market, with 5% down ( or zero?) Perhaps put a house somewhere between stocks and bonds in terms of risk and reward.
I think that’s a corollary of the maxin that “assholes are assholes”. A lot of the people who try to tell you what to do in your neighbourhood, probably gravitate to the position because they like being bossy busybodies, sticking their noses into your business and throwing their weight around. Seems like neighbourhood non-governments more than accomdate their desire to be little dictators.
There are plenty of people that make the claim that renting is always “throwing away money,” though. That’s simply not true.
(Slight hijack)
Actually, the average person *can *get leveraged exposure to the S&P 500. The CME Group’s E-mini S&P 500 futures contract is defined as 50 * S&P 500 index. At current levels that is about $80,000 of exposure. The CME requires $3,850 collateral to be posted for each contract held. That’s a 4.8% “down payment” on $80,000 of stock. I don’t think the average person should be trading stock index derivatives. Though, IMO, they’re a lot easier to understand than buying a house.
That’s the way I’m looking at it- essentially that we have to live somewhere, and if I own a home, I’ll at least get some of that money back when we sell (I may still owe money, but that amount will be less than if I had rented the whole time), while if I rent, that money’s completely and utterly spent, and I’m never getting any of it back.
I don’t plan on retiring on my house equity- it’s an asset that I plan on transferring to my kids after I die.
Something I neglected to mention are quality of life issues. Most often these aren’t considered in making economic comparisons but I think they need to be since they clearly factor into the decisions that people make. Beyond that, there is economic value attendant to different living situations that one should at least try to capture even if it cannot always be completely and objectively quantified.
I’m not sure that’s true. Or at least it’s not that simple.
I would expect the price of the tax break to be priced into the market. That is, if you get your rent “tax free” because it comes as part of owning the house, I’d expect the price of houses to go up as a result. So, now homeowners are paying more in property taxes, which balances out the income tax they don’t pay on their “rent”. Where net result is depends on how rational the market is for houses and what the relative tax rates are.
Another way in which taxes can make this issue complicated is Prop 13, in California, which effectively mandates that property taxes rise slower than inflation as long as the house has a single owner. The longer you own the house, the lower your effective property tax rate. In that case, it can actually be more economically efficient to rent from a property owner who’s had the house for a long time. He’ll pay less in taxes than you would if you bought the place from him, and that surplus can be split between the owner and the renter. Win-win (-lose, for the state).
Yup. I bought a house for $350K in 1997 - I could have easily sold it for $800K in 2004 or 2005, and could sell it for $750 today, based on comps. I just got lucky and moved to the Bay Area at the right time - though even back then the house seemed absurdly expensive.
Of course a SPECIFIC house can be a good investment. Many people have made bigbux on their house. But then, some people win at blackjack.
IN GENERAL there is not the slightest bit of evidence to suggest that houses, on average, are a worthwhile investment. You’re paying to have a place to live, which is great, but the average homeowner doesn’t make money on it.
Assuming you don’t end up with medical requirements that mean you have to sell the house…
let’s say you have a mortgage of $2000 and a rental of equivalent property of $1500.
At 5% that’s $300,000 - non-taxable for couple?
Let’s pretend your mortgage tax credit balances your property taxes.
So investing $500/month, you end up with $300,000 after 20 years.
We ignore inflation, the value of the home going up, etc. - work in current dollars for simplicity and to avoid hand-waving arguments.
$500/mo. at 5% growth over 20 years gives about $203,000. Taxable.
You can fiddle with the numbers - higher rate of return on market, house price goes up/down, rent vs. own prices, etc. You can hand-wave all you want, and each wave of the hand changes the result.
If you stay in the house past when the mortgage is paid off, then even more so you come out ahead vs. renting, especially if you put that extra into investments. That 21st year, your investment increses by $24,000 or more.
Certainly, due to the up-front costs if you are going to be in a location a short time renting is better. If you may have to sell at a time not of your choosing, when the market may be down - renting may be better. if you are a clever and knowlegeable investor, maybe investing is better.
So far we have a range of people who flip multiple homes like cards all the way to children who sell the house of their parents when they shuffle off.
Most of the discussion here was on the value of a house to someone who sells or buys it. OP asks, I think, about someone who doesn’t give two shits about the market for his house, given that he, like a poster upthread, plans to leave it in a box. Assume it’s true, and he is correct about not being forced to sell for any reason (one can think of any number).
Why would that house be a “biggest part of his retirement nest egg?” Only if he finds out he needs the money and finding some cheaper living arrangement is the best way. Otherwise, who cares? Except for equity to borrow from the bank…
Because most people aren’t all that good at saving money, so often it turns out that the greatest single source of cash value they have when they retire is the equity in their home. Which they can then tap via selling it, or by taking out a reverse mortgage if they wish to remain in the place and don’t care about handing it on to their kids.
Unless the law has changed recently (and lord knows it might have), that is a one-time-only deal.
The IRS will let you sell a house you have lived in for at least (five? two?) years at a profit and not pay tax on the profit. You also have to be past a certain age (I think it was 55).
Last I heard the most obvious tax advantage of owning was that the interest you paid on the loan was tax-deductible.
Not the best metaphor.
See, quite a lot of us are the last owner of the cars we own, even the ones we buy new. Not many of us can say that about our houses.
A dent is purely cosmetic damage. While the car may be worth less now, it is no closer to its final voyage to the junkyard for having it. So one might well be advised to shrug it off.
It’s more like someone borrowing your car and hearing the gears grind as he tries to find reverse: that sound represents a reduction in the service life of your transmission. Whether in replacement or repair, that act is going to cost you money down the road.
My husband and I have made a lot of money over the years buying houses that need work, living in them a few years while renovating, and then selling. We purchase specifically based on investment value, though, not because we love the color of the kitchen or something like that.
It was an analogy rather than a metaphor, and no analogy is perfect. My point is that whether someone else can take an action that will have an effect on the value of property you own is a separate issue from whether you view that property as an investment. I felt the OP was conflating two independent issues.