How houses eat money

[tuixiu]

Quote:

Originally Posted by MasterBlaster The author needs to subtract off the imputed rent value that he derived from living in the house from the expenses.

First thing I thought when reading it too.

He's comparing the financial gain of owning a home to investing while living in a cardboard box.

[Nords]

Quote:

Originally Posted by tiuxiu He's comparing the financial gain of owning a home to investing while living in a cardboard box.

Another rational financial assessment of an issue that's fraught with emotion.

I don't think any renter is going to invest their time/energy on improving their space any more than they're able to take it with them. But we all want to be able to have living spaces like we see on HGTV, and the best way to achieve that is to own them.

IMO renting has an element of duress. Even when I was taking care of a property for my landlord there was the unspoken sentiment of "If I do this for you then you won't jerk the place out from under us, right?"

We bought our first Hawaii home at the peak of the market and over the 20 years it appreciated at the rate of inflation, although with a lot of volatility. However we bought our second "dream home" at the pit of a decade-long price slide and it's more than doubled in value over the last eight years, even despite the beginning of another retrenchment. Can't achieve that type of leverage by renting. Of course you can't lose money that fast by renting either.

Landlords frequently compare their rental income to long-term CD rates. However the long-term CD rates seem to change a lot faster than rental rates. We've been averaging a bit over 4.5% cash-on-cash return, which looked like a loser up through 2007. Today, however, it's quite satisfactory. Can't do that by renting, either.

[charlie]

My Dad was an oil/gas land man during WWII and, by necessity, we
followed the oil play living in sub-standard rent houses and trailer courts
during many of my formative years. It wasn't until we finally settled
in Wichita Falls, Texas after the war that we bought a home and put down roots.

Needless to say, that experience has colored my attitude toward the
"rent or buy" question ever since. IMHO, a family man with a stable
job, marriage and children should buy the best house he can afford
and enjoy God's blessings. The issue, to me, is more about quality of
life than about money.

Cheers,

charlie

[Koolau]

Can't add much to the rent vs buy argument that's already been discussed. Y'all have done a good job on the pros/cons etc. I've done both when I thought it was to my advantage. Sometimes each way was a net winner and sometimes each was a loser. Still, as I look back, there were other factors which influenced my decisions other than pure economic advantage of rent vs. own.

Let me throw in another opinion (not my own original but it is now coloring my thinking). Burns and Kotlikoff's book THE COMING GENERATIONAL STORM makes a case for home ownership based on the imputed income of a paid-for house. In essence, your house pays your rent so you do not need to earn money (and be taxed on earnings, local, state, SS, Fed, etc.). Other investments' earnings (not all) are taxed in some form.

Why would this imputed, untaxed earning be so valuable? If as B and K believe, taxes can only go up to cover (this is before TARP and all the other recovery programs) SS to boomers, Medicare, Medicade, etc., then "tax free" income is king.

Naturally, their premise is based on several things (big one being taxes on the rise - now there's a stretch!) but they make a good case in the book. Naturally, YMMV

[ziggy29]

Quote:

Originally Posted by Koolau Let me throw in another opinion (not my own original but it is now coloring my thinking). Burns and Kotlikoff's book THE COMING GENERATIONAL STORM makes a case for home ownership based on the imputed income of a paid-for house. In essence, your house pays your rent so you do not need to earn money (and be taxed on earnings, local, state, SS, Fed, etc.). Other investments' earnings (not all) are taxed in some form. Why would this imputed, untaxed earning be so valuable? If as B and K believe, taxes can only go up to cover (this is before TARP and all the other recovery programs) SS to boomers, Medicare, Medicade, etc., then "tax free" income is king.

This is, to me, one of the primary driving factors for us to buy a small, cheap house with cash. The ability to live on as little income as possible in an environment where taxes are likely to rise and more means-testing is likely in health care and Social Security. So the more we can configure our lives to be "livable" on lower income, the more survivable our future.

But please don't give Washington any ideas about taxing the "imputed income" of people with paid-off homes... the last thing I need is to pay tax on $500-600 a month representing the rental value of our home.

[haha]

Quote:

Originally Posted by ziggy29 This is, to me, one of the primary driving factors for us to buy a small, cheap house with cash. The ability to live on as little income as possible in an environment where taxes are likely to rise and more means-testing is likely in health care and Social Security. So the more we can configure our lives to be "livable" on lower income, the more survivable our future. But please don't give Washington any ideas about taxing the "imputed income" of people with paid-off homes... the last thing I need is to pay tax on $500-600 a month representing the rental value of our home.

This idea comes up from time to time. I think we can expect the real estate/mortgage/S&L lobby to crush it every time.

Ha

[mathjak107]

Quote:

Originally Posted by Koolau Can't add much to the rent vs buy argument that's already been discussed. Y'all have done a good job on the pros/cons etc. I've done both when I thought it was to my advantage. Sometimes each way was a net winner and sometimes each was a loser. Still, as I look back, there were other factors which influenced my decisions other than pure economic advantage of rent vs. own. Let me throw in another opinion (not my own original but it is now coloring my thinking). Burns and Kotlikoff's book THE COMING GENERATIONAL STORM makes a case for home ownership based on the imputed income of a paid-for house. In essence, your house pays your rent so you do not need to earn money (and be taxed on earnings, local, state, SS, Fed, etc.). Other investments' earnings (not all) are taxed in some form. Why would this imputed, untaxed earning be so valuable? If as B and K believe, taxes can only go up to cover (this is before TARP and all the other recovery programs) SS to boomers, Medicare, Medicade, etc., then "tax free" income is king. Naturally, their premise is based on several things (big one being taxes on the rise - now there's a stretch!) but they make a good case in the book. Naturally, YMMV

its no different then a landlord who buys a 2 family and says he lives free...noooooo hes paying the rent hes not getting by living in the apartment...... everything costs ya no matter how you look at it.... buying a house and living in it is like a coke dealer snorting his own product he paid for.... suppose you live elsewhere and rent the house out that you have money invested in... would you say your living for free?

[Dennis]

Well I don't know where your Home is, but In the North Sub. of Chicago? Bought mine for $57k and after 15 yrs, it was paid off and sold it on yr 16 for $300k. Figured I put about $100k into it in all.. Keeping Records..right down to R&R Hot water heaters to Light Bulbs.. now that's about +$200k Net, since no Taxes on it.. or 200% on it..

Bought a retirement place 60 mi north accross the Border in Wi. for $75k, put About $25 k into and Put the other $200k into my Retirement savings..

But, uphere in Wi., houses don't appreciate 7-9% a yr, more like 3-5%..so IAD where you Live....and of course, timing is key as well..

My Dad's place.. same area.. Built it for about $10k he said in the early 50's, Sold it for $300k when He Died.. Buyer tore it down and built a McMansion on it.. he and my mom lived in it till yr 2000.. almost 50 yrs..He did most Maintenance and Repairs Himself ... and was Very happy to have a place, after living on a farm and After getting out of The Navy /WWII.

And always told us kids 'Get yourself a Place and get it Paid off First, before you go using your $ for anything else"... I and my Sibling did just that.. didn't start saving additional $ into IRA's, etc. until After we paid off our houses.. and he also told us Boys: ' It also keeps your mother broke and can't spend as much , but she did after he built up Savings ...." he was right about that too...LOL

and putting $ thru a Payroll ded. Plan and #401k doesn't work to hide $.. Look how many are tapping into their #401k's....and even being down 20-40%!

[FANOFJESUS]

Quote:

Originally Posted by OAG Imputed rent cost - Opportunity cost = Close to Zero (in most cases). I know "it depends".

You are right, he made some money but it was very little over the 13 years.