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Old 08-23-2010, 05:45 PM   #21
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I look at a home as in investment in the sense that over time, a fixed-rate mortgage costs you less and less because of inflation, and once it's paid off, you have a rent-free place to live. True, you still have property taxes, utilities, upkeep, etc, but all that combined should still come out cheaper than renting an equivalent place.

Plus, as you build equity, you can pull some out and invest...just don't get TOO greedy!

I'm not looking at a home as something that you buy and flip after a few years for a big profit...so not an investment in that sort of sense.
+1

Given that a home is usually the biggest purchase that most people will make in their lives, IMHO it would be a mistake not to evaluate it as an investment. (Whether it is the best investment that can be made is another question enirely.)

Also IMHO a lot of the extreme negativity about US property in general is no more than examples of recency bias and herd following.

Lastly, many of the comments I see in the media, on blogs and in forums like this sound very similar to what was being said and the sentiment that prevailed in Hong Kong in 2002/3 when the local property market was at its lowest point - it was a great time to buy.
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Old 08-23-2010, 06:21 PM   #22
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I definitely view my home as an investment. It may not be my best performing asset, and I am unlikely to sell it any time soon to pay a bill, but it is a place where I park a lot of money.

And, when I figure my net worth on firecalc and the like, my home equity is part of my overall portfolio dollar figure.
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Old 08-23-2010, 06:56 PM   #23
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My home is my home. I don't view it as an investment or source of income. I have a place to live that no one can take from me as long as I stay current on property taxes. That allows me to sleep soundly at night. A luxury that my investments do not provide.
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Old 08-23-2010, 08:35 PM   #24
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My home is my home. I don't view it as an investment or source of income. I have a place to live that no one can take from me as long as I stay current on property taxes. That allows me to sleep soundly at night. A luxury that my investments do not provide.
Yep, I agree, Dog. In the town we live in (small town in the Upper Midwest), you are not going to make much, if any $$ on a house when you sell it (unless you have a home with water frontage, which ours is not). In fact, if I were to put my house on the market right now, I'd be fortunate to get the same price that I paid for it (not even figuring in inflation), back in 2000 -and we've made several improvements to the house since then. But, it doesn't really matter, as the house is paid for, we're happy here, and it will likely be the last house we ever buy. So, it's a place to live and be comfortable, in my view - not an investment.
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Old 08-24-2010, 12:05 PM   #25
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And, when I figure my net worth on firecalc and the like, my home equity is part of my overall portfolio dollar figure.
This is interesting. I don't know if I have heard anyone on this forum say they include their home equity in their portfolio value for purposes of firecalc or other financial calculators.

How does this work? Do you plan on liquidating your house or reverse mortgaging it as part of your financial planning, or is it basically another safety net in your planning?

I guess in a way the consensus here is overly conservative in that we don't typically include the potential for a reverse mortgage in our planning. I know I always have that choice, but it would be more of a last resort I guess.
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Old 08-24-2010, 12:18 PM   #26
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This is interesting. I don't know if I have heard anyone on this forum say they include their home equity in their portfolio value for purposes of firecalc or other financial calculators.

How does this work? Do you plan on liquidating your house or reverse mortgaging it as part of your financial planning, or is it basically another safety net in your planning?

I guess in a way the consensus here is overly conservative in that we don't typically include the potential for a reverse mortgage in our planning. I know I always have that choice, but it would be more of a last resort I guess.
Safety net. I figure it will be for sale when I'm on my way into the old folks home. To be clear, I also run Firecalc without it. I have a relatively inexpensive home ($180-200k), so it doesn't have a huge impact.

If you want your full picture money is parked in your house, and your home value does appreciate.
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Old 08-24-2010, 12:27 PM   #27
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If ya'll wanna see a poster child for the housing bubble and burst, in the DC area at least, check this baby out:

12010 LILIUM Ln, GLENN DALE, MD 20769 | MLS# PG7136253

This house isn't too far away from where I live. Purchased for $297K back in late 2001. Went on the market about a year ago, asking $549K, and now down to a short sale of $340K. One of my friends was able to look up the loan info on it, and it turns out the original owner financed $288K, but then took out two home equity loans totaling $56K. And then, in 2007, did a refinance for...drumroll please...$447K!

I hope they got something to show for that $159K. Sadly, if they had just taken out a conventional 30 year mortgage and never took out any equity, they'd probably have it paid down to around $250-260K by now, so they'd actually have around $80-90K in equity, rather than selling it at a ~$100K loss.

So yeah, a home can be an investment. Sometimes, a bad one, depending on timing, location, choices you make, etc.
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Old 08-24-2010, 01:29 PM   #28
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Safety net. I figure it will be for sale when I'm on my way into the old folks home. To be clear, I also run Firecalc without it. I have a relatively inexpensive home ($180-200k), so it doesn't have a huge impact.

If you want your full picture money is parked in your house, and your home value does appreciate.
Thanks for the clarification. My home is similarly priced and will probably represent a small portion of my total net worth at FIRE. But it would be enough to fund 5-10 years of expenses if I really needed to liquidate it or reverse mortgage it.

I guess I have never really modeled withdrawals including the house equity. I figured it would be there in the 5% of FIREcalc scenarios that result in failure. Of course I'm pretty conservative about SS assumptions, figuring I might get around 25-50% of what I am promised today.
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Old 08-24-2010, 02:30 PM   #29
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We have been married 38 years and have owned 10 different homes in that length of time. Never lost money on any of them and have actually made enough over those years to pay cash for our current residence. I know that doesn't work out for everyone, but consider this example. Let's say our house is worth $250k. If we had the money invested and earned 5% per year, it would generate $12500 income or $1042 per month. I couldn't rent this house for that monthly amount so I figure I'm ahead of the game by owning it outright even considering taxes and maintenance. So, my investment in this house is the same as it generating enough to cover the rent. I think owning a house is a great investment. Anyone disagree?
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Old 08-24-2010, 03:04 PM   #30
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This is interesting. I don't know if I have heard anyone on this forum say they include their home equity in their portfolio value for purposes of firecalc or other financial calculators.
I don't use its value in any forecast software (e.g. FIRECalc, RIP, FE, etc.) but I do have it as a line item within Yodlee (picks up the current value from Zillo) to give me an overall estate gross net worth, along with the percentage of the value of my home in relationship to all of our assets which I use to do a rough calculation on future estate taxes, both federal and state.

Since the proceeds of our estate is to be used for the future care of our (disabled) son, I'm interested in any current estate tax law changes, and how it will impact his possible care (yes I know, I/DW should pass before the end of this year ). That's the reason why I keep a rough "guessitmate" of our current estate value.

I don't include any personal property (e.g. cars, furniture, etc.) within that calculation since I figure those items will go for pennies on the dollar when we pass, and not affect our final taxes as much.

Of course, we don't look at our home as an investment. It's the place I/DW go to sleep at night. When we no longer have use for it, it will be sold and the proceeds used for the benefit of our son, or depending on current tax law, to pay the state/federal government their "pound of flesh".
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Old 08-24-2010, 03:12 PM   #31
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Let's say our house is worth $250k. If we had the money invested and earned 5% per year, it would generate $12500 income or $1042 per month. I couldn't rent this house for that monthly amount so I figure I'm ahead of the game by owning it outright even considering taxes and maintenance. So, my investment in this house is the same as it generating enough to cover the rent. I think owning a house is a great investment. Anyone disagree?
You only have to plug some slightly different numbers into that to come up with the opposite effect. We pay 1500 a month to rent a house which would probably sell for 400K. If we put 400K into a tax-free IRA of some kind with a reasonable growth rate of 7%, that's 2200 a month. (That was one reason, although not the main one, why we sold our paid-off home in 2007 and rented. The main reason was logistics, not prescience about the house market, which in any case didn't collapse round here.)

I'm fairly certain that the win/lose line between buying and renting is essentially a question of what you do with the difference between rent and a mortgage payment.

There is another way that I don't like to think of a house as an investment, especially for retirement, and that's flexibility. Some people over 70-75 may be prepared to sell their home and move downscale, but not many. So while the capital in your home might be OK for paying for the surviving spouse's nursing home costs (while the heirs weep) because it can be sold after s/he moves out, it's not especially accessible in real-world scenarios for retired people who want to boost their income, or put a chunk of cash in the grandchildren's college funds.

I would guess that an analysis of the "portfolio" of many - most? - US retirees would show that a very large number of people are 85% exposed to the "US residential property" asset class. Doesn't sound like balance to me.
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Old 08-24-2010, 03:36 PM   #32
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it's not especially accessible in real-world scenarios for retired people who want to boost their income, or put a chunk of cash in the grandchildren's college funds.
... unless they get a reverse mortgage.
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Old 08-24-2010, 04:23 PM   #33
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Personal use asset. It's on the balance sheet and is part of my net worth, but not an investment asset.
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Old 08-24-2010, 09:57 PM   #34
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Yes. I bought my house in 2005. I didn't purchase it because I wanted to invest in an illiquid, undiversified asset at an all-time high price.

I bought it because I wanted a garden, and a basement to raise tropical fish, and a place to live with the woman who would later become my wife.

The house is currently worth about $50k less than I have put into it.

I don't think of that as a bad investment. I think of it as consumption, like buying a fancy car or eating out for dinner a lot.

I would expect that in 5-10 years, some of that $50k may come back in appreciation, but even if it doesn't, it will look a lot better as consumption when spread over 15 years rather than five.

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Personal use asset. It's on the balance sheet and is part of my net worth, but not an investment asset.
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Old 08-25-2010, 06:25 AM   #35
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In the last week or so, we've seen (I've even posted one) NY Times articles talking about how individuals are pulling money of the stocks, how bonds are riskier than we think, and now how housing is permanently gone as an investment.

Now if I worked for the NY Times, knowing that my company is in danger of bankruptcy and the internet has obsoleted my core business, I might be as pessimistic as the folks are.

The fact remains that they aren't making any more land, and there is a limited supply of land in places that people find desirable to live. (This is true even in places like Cleveland, or Dallas and of course in islands NYC, Honolulu or the SF Bay Area). The population of the US is increasing, and the average household size is decreasing, thus increasing demand for housing. So if supply is restricted and demand is rising what happens to price?

Will prices go up in the next 5 years, some place yes, some places probably not. Will there ever be house bubble like we saw in the last decade? As I told my niece recently, probably not in my lifetime almost certainly in hers.
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Old 08-25-2010, 06:36 AM   #36
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So if supply is restricted and demand is rising what happens to price?
Aren't you leaving something out of the equation? I hear rent, not buy is the new way forward.

Maybe the McMansion of the future will be the McPartment.
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Old 08-25-2010, 08:03 AM   #37
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Maybe the McMansion of the future will be the McPartment.
Or maybe not. I'll just keep my place in the country
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Old 08-25-2010, 10:35 AM   #38
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Aren't you leaving something out of the equation? I hear rent, not buy is the new way forward.
I've heard that. I don't get it. Don't the renters rent from someone that owns the house? And didn't the owner plan to make a profit?
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Old 08-25-2010, 10:53 AM   #39
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*evil Bender laugh* Renting - it's the only way to go! Home ownership is too onerous, you can't come out ahead owning property, paying someone for the privilege of living in their place is the smartest option as landlords exist just to lose money. Bwaahaha.
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Old 08-25-2010, 11:05 AM   #40
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Yes, I've heard about the Camloki Charitable Foundation - You are soooo nice to not make any money for all that work !

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