Poll: Importance of home ownership

[Options]

Does that 4x figure also include non-deductible mortgage interest (which most people do not take), insurance, taxes, maintenance and personal man hours spent on the place over those 18 years?

Paid cash so no mortgage. Insurance was negligible at around $650 annual. Low prop taxes (RE was in a slump at the time so prop taxes correspondingly low) capped by prop 13 in CA. Yes, I pay an HOA fee, but as I despise doing household maintenance of any kind so I gladly pay this laziness fee to steer clear of using "personal man hours" (until recently I even paid to have the place cleaned!).

Profit comes from living in a shiny happy trendy area (just outside Beverly Hills) filled with shiny happy trendy people who will eagerly pay me outrageously high shiny happy trendy dollars when I vacate and move to a place not populated by mannequins.

 

[daylatedollarshort]

One family in our neighborhood sold their house after a year for $100K gain. Another sold after ten years for less than they paid for it after deductions for realtor fees. Some of it is luck and some of it is the difference between buying at the top and bottom of a bubble.

 

[youbet]

One family in our neighborhood sold their house after a year for $100K gain. Another sold after ten years for less than they paid for it after deductions for realtor fees. Some of it is luck and some of it is the difference between buying at the top and bottom of a bubble.

So houses act like other investments in that supply and demand vary over time and investment outcomes aren't guaranteed to be positive?

Gee, who knew?

Confounding the housing investment scenario is the situation where the owner is living in much more square footage and absorbing much more expense that really needed for their desires and lifestyle. Yet, because it's "home" they don't look at it as wasted expense. It's "home."

 

[bikeknit]

I voted somewhat important. Because it varies by situation. For us, it was probably a bit more than that. Home ownership is a way for modest income people to buy a little leverage - as long as you don't overbuy. the cost of the asset goes up (with inflation only in our area) and your costs shrink in relation to inflation. Once you've paid it off you have a modestly priced place to live and that can make it easier to retire.

 

[Fermion]

Being up 4x on a cash house purchase is nice, but if you had sunk that money into Gilead you would be up some 30x.

Would have to figure out how much you could have invested in Gilead with the cash while reserving the rest for rent but I imagine you still would be up about 10x to 15x on your original investment.

 

[jkern]

Probably Not Important At All. In theory, all you need is enough money invested (or pension, SS, etc..) to cover your standard of living whether you own a home or rent.

For me personally, very important. I enjoy home ownership vs renting. Low relatively fixed costs and an ace in the whole if I need it.

 

[ziggy29]

In reality, "rent or buy" is right up there with "pay off debt or invest" in terms of the passion it stirs up in a lot of people who forget that one size does not fit all, and that their situation and temperament is not that of everyone else.

 

[youbet]

........and an ace in the whole if I need it.

How is your house an "ace in the hole" if you need it? That is, if you're in a $200k home, how is that a better "ace in the hole" than if you had a portfolio of $200k TIP bonds? Or some other conservative investment?

 

[mpeirce]

Not that it's particularly important for people in this forum, but...

I've noticed a few relatives who had modest investments in retirement but also owned their homes outright. This acted as a useful fallback position for them. Typically, living modestly on what they had, then selling their house as they moved into assisted living - and using the house proceeds to pay for this.

Would they have saved a comparable amount of money otherwise? Doubtful.

So certainly if you are trading home equity for a sophisticated asset mix returning more than owning a house you might be fine. But for some folks, homeownership is a kinda of forced savings plan that pays off for them late in life.

 

[FIREd]

I think home ownership is one of the foundations of the US economy. It has fueled economic growth and well being for countless millions and generations of families and has been a critical source of employment. This should continue for my children's generation as well.

Maybe that's why renting is seen as being so undesirable. When I tell people that we are renters, they generally assume that we can't afford to buy. And when I say that we rent by choice, then we are just two financially-illiterate people wasting money on rent.

 

[haha]

Considering how expensive is your neighborhood, I would think that many people might prefer to rent. Laying down $x millions on a house to me would seem to be introducing some unwelcome risk.

But what you mention is certainly common. I read somewhere that I cannot remember a survey which showed that homeowners are more prejudiced against renters than any other group.

Ha

 

[ERD50]

...
But what you mention is certainly common. I read somewhere that I cannot remember a survey which showed that homeowners are more prejudiced against renters than any other group.

Ha

My Dad certainly felt that way (and wasn't shy about saying it). And even though I've been a long time home-owner, I lean towards thinking renting is the right thing for my kids - they may be moving while following career starts for at least a few years, better to stay flexible.

-ERD50

 

[daylatedollarshort]

My first thought during the recent earthquake, was sh*t, we should have downsized last year. Then if worst came to worst we'd have a smaller dwelling to repair or replace.

 

[ziggy29]

My Dad certainly felt that way (and wasn't shy about saying it). And even though I've been a long time home-owner, I lean towards thinking renting is the right thing for my kids - they may be moving while following career starts for at least a few years, better to stay flexible.

As more and more careers require the ability to be mobile and flexible -- and one can no longer plan on being at the same place for 10+ years at a time, even if they want to be -- the tougher it is to be saddled with an owned home. I think it's great to own in an affordable market when you have good long-term prospects for a steady income where you live, but that describes fewer and fewer of us, especially the younger you go.

 

[FIREd]

Considering how expensive is your neighborhood, I would think that many people might prefer to rent. Laying down $x millions on a house to me would seem to be introducing some unwelcome risk.

Ha

The pressure to own is pretty strong, even here. Dropping $x millions on a home in this area is often seen as low-risk because of the strong appreciation in recent years.

 

[marko]

Well, I do like the idea of having a really nice home to live in where my main cash outlay is only property taxes (maintenance aside). The key is paying off the mortgage.

If I had to pay rent for a similar home ($5k-6K a month?), it would eat into my portfolio value a lot more.

My grandad had bought this house as a 1929 Depression foreclosure. He told me "nothing is sadder than seeing someone having to move out of their home because they can't afford it....pay it off and nobody can take it from you!"

 

[Rustic23]

I said 'very important'

I don't think the actual ownership is what is important but the discipline and responsibility that owning a home brings. One can argue that the same can be had by renting, but most of us do not treat rentals the same as ownership.

 

[daylatedollarshort]

The pressure to own is pretty strong, even here. Dropping $x millions on a home in this area is often seen as low-risk because of the strong appreciation in recent years.

Recent is the key word. Our house went down 30% after the last crash. We bought it a long time ago so it didn't matter so much. It still hurt, though.

 

[MichaelB]

Buying a home and financing it with a 30year fixed mortgage is probably the single best financial option most people have to protect themselves against inflation over the long term.

 

[ziggy29]

Buying a home and financing it with a 30year fixed mortgage is probably the single best financial option most people have to protect themselves against inflation over the long term.

In an era with mortgage rates around 4%, that's a reasonable take. When rates were 7-8%, or even into double digits, it seemed a lot more compelling to take a 15-year to the extent cash flow made it feasible -- the difference in interest payments with such a high mortgage rate was dramatic between the two. People who are comfortable with debt may not see a strong need to quickly pay down a loan with a rate that low, and prefer to use their excess cash flow to invest for the longer term at an expected higher long-term rate well in excess of the mortgage rate.

 

[Fermion]

Buying a home and financing it with a 30year fixed mortgage is probably the single best financial option most people have to protect themselves against inflation over the long term.

Why? It is a depreciating asset except for the land it is on. Over the long term roofs need replacing, carpets need replacing, siding needs painting, eventual replacement, even foundations can crack and need serious repair.

In some regions it does appreciate as fast or faster than inflation but in others it does not. It is a bit of a gamble if you manage to pick the right time to buy and the correct region.

A mix of stocks has a much lower transaction cost, lower maintenance, pays dividends, and better diversity.

 

[MichaelB]

Renting does not protect one against home maintenance, repair, taxes or any other expense. Those costs are built into the rent.

 

[Fermion]

Renting does not protect one against home maintenance, repair, taxes or any other expense. Those costs are built into the rent.

This is true, but when you rent you have the freedom to upgrade, downgrade or move with minimum costs. You also do not take on risks to the property like flooding or earthquake which are usually not covered for the landlord by standard insurance.

A home as an investment also has a hefty front end load and back end load. It does have tax advantages when selling, but so do stocks if your income is low (capital gains rate 0%). The home mortgage is deductible, but so is margin interest in a stock account.

 

[ERD50]

...The key is paying off the mortgage.

If I had to pay rent for a similar home ($5k-6K a month?), it would eat into my portfolio value a lot more. ...

And paying off the mortgage didn't 'eat into your portfolio value'? I just love this 'shell game' accounting some people use to rationalize their position!

My grandad had bought this house as a 1929 Depression foreclosure. He told me "nothing is sadder than seeing someone having to move out of their home because they can't afford it....pay it off and nobody can take it from you!"

Another myth. What do you think happens if you can't pay your taxes, or can't afford the maintenance or insurance? Money fairies appear at the houses with no mortgage? My property taxes are now higher than my mortgage - those taxes go up most every year, exceeding the rate of inflation, and my mortgage does not (has actually gone down, I got an ARM at the right time).

Renting does not protect one against home maintenance, repair, taxes or any other expense. Those costs are built into the rent.

+1 - TNSTAAFL. Though renting may be the right decision (or just preferred) in many cases - and vice-versa!

-ERD50

 

[donheff]

I said 'very important'

I don't think the actual ownership is what is important but the discipline and responsibility that owning a home brings. One can argue that the same can be had by renting, but most of us do not treat rentals the same as ownership.

+1 I also went with very important although probably not for young people who are already on this board. But most young people are not on this board and would not rent a modest place and invest the difference. Most would probably end up with roughly the same portfolio either way but the homeowner stands a better chance of having very low housing expenses in retirement or the opportunity to cash out and move to a lower cost place, an apartment, whatever. I lucked out. DW and I bought a nice place in a neighborhood in which we want to age in place. The costs of tax and maintenance are minimal. Had we rented from the outset we probably wouldn't have saved more and would face a big expense to rent anything comparable in our area.