ziggy29
Moderator Emeritus
There is no One True Way that applies to all people in all situations, no matter how dogmatic the adherents to either "side" may be.
There is no One True Way that applies to all people in all situations, no matter how dogmatic the adherents to either "side" may be.
Agreed, but there's still value for those reading the thread if they can look at all the ideas and parse out which factors apply in their situation.I seldom express my opinions on this type of thread because the responses I get are so strongly and emotionally negative by those who think their "reality" applies to me.
I'm a big fan of this appriach and I've done it often with the "big" decisions. (IMO, being able to design and use a spreadsheet should now be a "core task" that kids learn and know by the 8th grade. It'll be much more useful to more people in every aspect of their lives than some of the other things I learned. It wouldn't much matter what specific program was used, the concepts work cross-platform, mostly.) But often the things that push the decision one way or another are non-monetary ones that don't work well on a spreadsheet (e.g. how disruptive to our lives would it be if the landlord didn't renew out lease? ). Or, the numbers in the spreadsheet are estimates, and it would require some fairly high math (sensitivity analysis, etc) to do a rigorous job of analysis. But, a simple spreadsheet is good for a first-order estimate and it forces a useful attempt to think of all the important factors that can be quantified. It's lots better than the "gut feel" approach or the "what my BIL says" method that I think a lot of people use.My suggestion to anyone who is trying to get definite information out of this thread, is to carefully set up your own spreadsheet with your own local real estate ownership costs and rental costs in mind. Include ALL costs of both options, figure it out for yourself, and beat your spreadsheet to death until you have complete, full confidence in your numbers. Remember that old saying that nobody cares as much about your money, as you do.
+2My suggestion to anyone who is trying to get definite information out of this thread, is to carefully set up your own spreadsheet with your own local real estate ownership costs and rental costs in mind. Include ALL costs of both options, figure it out for yourself, and beat your spreadsheet to death until you have complete, full confidence in your numbers. Remember that old saying that nobody cares as much about your money, as you do.
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?
With home ownership, I have a much lower monthly cost than renting. Currently about $600/month vs. renting same home at about $4500/month. I understand what you mean by liquidating the home and investing the equity as an ace in the whole. The problem is that the high cost of rent would probably go through that money and not be available later in life. By owning the home, if I were to need money at some point in time I could access the equity in a number of different ways.
Rents here (SF Bay Area) are very high. It's common for a 1 bedroom apartments to rent for $2000 to $2500 per month. Ouch....
With home ownership, I have a much lower monthly cost than renting. Currently about $600/month vs. renting same home at about $4500/month. I understand what you mean by liquidating the home and investing the equity as an ace in the whole. The problem is that the high cost of rent would probably go through that money and not be available later in life. By owning the home, if I were to need money at some point in time I could access the equity in a number of different ways.
Rents here (SF Bay Area) are very high. It's common for a 1 bedroom apartments to rent for $2000 to $2500 per month. Ouch....
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.
As others pointed out, you are neglecting the fact that the money you have tied up in the home could be earning you $$$ if invested. A $4500 rent is likely a $700,000 to $1,000,000 property. Even if you are grandfathered in to low taxes, when someone else tries to buy your property, they will pay a much higher rate per month. $600 a month is $7200 a year. This is the cost for earthquake insurance, fire insurance, real estate tax, and home maintenance on a $1,000,000 property? I do not think that kind of deal can be found in a new purchase.
It would be like me saying I have Apple shares purchased at post split $10, so I am getting a dividend of 15% which blows away any home investment. It is a bad comparison because the next person that comes along will pay much more than $10 per share for Apple.
Until you find out that you need a new roof at $x, or the sewer line immediately repaired for $6,000--which recently happened to my former landlord. And many "homeowners" are at the mercy of a landlord--who just goes by another name (such as "homeowners association").
Anecdotally, I have made more money in the market (and probably in treasury bonds alone) than in housing - even with the leverage. Bought our first home in 2002 for ~$185,000, sold it in 2005, plowed the equity back into another home bought for ~$194,000. Ten years later, I might be able to sell it for $220,000 - on a good day. I am so glad we never spent much money on houses.
That's perhaps why I am not too keen on dropping 7 figures for a tiny house in earthquake country.
What is the opportunity cost you're assigning to the money tied up in your home? For example, if your home is valued at one million and you could invest conservatively at 3%, your annual opportunity cost is $30k.
You arguments are all valid except they're general arguments about home ownership and not arguments regarding a home being a better "ace in the hole" (I'm interpreting that as being a source of hard times or emergency money) than the same monetary value invested in a relatively liquid, convervative portfolio.
As others pointed out, you are neglecting the fact that the money you have tied up in the home could be earning you $$$ if invested. A $4500 rent is likely a $700,000 to $1,000,000 property. Even if you are grandfathered in to low taxes, when someone else tries to buy your property, they will pay a much higher rate per month. $600 a month is $7200 a year. This is the cost for earthquake insurance, fire insurance, real estate tax, and home maintenance on a $1,000,000 property? I do not think that kind of deal can be found in a new purchase.
It would be like me saying I have Apple shares purchased at post split $10, so I am getting a dividend of 15% which blows away any home investment. It is a bad comparison because the next person that comes along will pay much more than $10 per share for Apple.
See, that's the thing -- if you don't trust yourself not to use your house as an ATM, if you can't resist the urge to take out HELOCs and cash-out refinances as you gain equity and want "more stuff", you probably shouldn't buy a house. Someone with such a lack of financial discipline will likely be worse for it.Our friends in Sacramento have a mortgage that is the maximum they can carry and they increase it to buy a new car a new big TV et al. They are in their 60s.
Perhaps if the poll were retitled "Do you think buying a home at the market low while getting benefits from prop 13 then having the market go bubblishious in your area is important to increasing your retirement nestegg?"