WSJ: "How Houses Eat Money"

[Patrick]

Quote:

Originally Posted by Martha We used to own a home on* the beach and sold it after a couple of years because we were tired of the summer crowds, high property taxes, and the big mortgage payment.* We got a decent return and were able to pay off all remaining student loan debt* when we sold the house.* It was after we got rid of that home we were able to start really saving money.* About 8 years later the same house sold again for nearly triple what we paid. (And the new owner tore down the house and built a new one )* So if we would have retained the house, we would have made a bunch more money. But we would have spent more money along the way as well and I think we would not have been better off in the end.*

I just purchased a 35 year-old* house near the beach.* At the closing I saw a form that showed what the house has previously sold for.* In 1974, $41K; in 1977, $71K; in 2000, $379K; then I paid $600K.* I'm not sure what that is compounded annually, but dollar-wise it's pretty significant (14.6 times in 31 years).* My nextdoor neighbor bought his house then tore it down and is in the process of building a new house - guess he just wanted the lot (a very large improvement cost there!).* My taxes will be $13.2K/year, so the house has to appreciate at 2%/year to cover that.* For me, it was a lifestyle choice to purchase this place because I want to live there, but I still consider it an investment. One way to look at home ownership is as a forced savings plan - you have to make the payment every month, then when you sell you get the money back in a big lump sum.* How many people would take the money they saved from renting and invest it?* Not many I know.

[Patrick]

Quote:

Originally Posted by tryan ... and another thing (note the JG posting style) .... most home owner improvements do little to add value to the house.* Simply style preferences.* Can remember the colors the DW picked for our first house's bedrooms.* Little sence in adding those costs to the value of the house.

So true. The best are kitchens and baths, which return about 70% of their cost (YMMV).

[saluki9]

Quote:

Originally Posted by ex-Jarhead Nords: If old Jonathan spent his 200% gain on repairs, etc., its a pretty fair assumption that property management should not be a fall-back career for him.

HE was talking about his carry as part of the expenses

[azanon]

Quote:

For us the costs were high mortgage payment, having to continue to make interest payments on student loans, high property taxes

What was weird for me was, for my financed amound (120K of 150K), my mortgage payment (on 30 year loan) + all the other escrow (property tax, interest, other misc stuff) was about the same as my apt rent for a 2 bedroom.

So, the only real difference I see is who's mortgage i'm going to pay; mine or someone else's. I'd prefer to pay mine.

Great article. I'm saving it for when someone tells me how much they've made on their house.

Often you'll hear someone say something like "I bought this house/land 15 years ago and I sold it for twice what I paid!" They don't realize that even without property taxes and other expenses, that's only a 5% rate of appreciation.

[JB]

Thanks Nords, that was a great article.

"I bought my house in late 1992 for $165,000. Today, it might fetch $500,000, giving me roughly a 200% gain."

How 500/165 = 300% gain. What am I missing?

Quote:

Originally Posted by Patrick One way to look at home ownership is as a forced savings plan - you have to make the payment every month, then when you sell you get the money back in a big lump sum. How many people would take the money they saved from renting and invest it? Not many I know.

This is exactly the case for many middle class homeowners that I know.

[Patrick]

Quote:

Originally Posted by JB Thanks Nords, that was a great article. "I bought my house in late 1992 for $165,000. Today, it might fetch $500,000, giving me roughly a 200% gain." How 500/165 = 300% gain.* What am I missing?

500-165=335.* 335/165=2.03, or a 200% gain.* The house is worth 300% of its original value, but the GAIN is 200%.

Patrick

[JB]

Duh..
I think I need another cup of jo

[spammy_davis]

I noticed the same thing several others in this thread have... unless he's comparing renting versus owning a home but living in a cardboard box in the park, he's forgotten the value of the rent he's not paying, which over 13 years on a house with a closing value of half a mill (and with plenty of nice improvements ) is substantial and easily pushes this in favor of owning that house.

[moghopper]

Quote:

Originally Posted by spammy_davis ...he's forgotten the value of the rent he's not paying, which over 13 years on a house with a closing value of half a mill (and with plenty of nice improvements ) is substantial and easily pushes this in favor of owning that house.

From the article

Quote:

...while you are struggling to pay the property taxes and keep water out of the basement, something wonderful happens: You get to live in the place without paying rent.

[cute fuzzy bunny]

Quote:

Originally Posted by JB I think I need another cup of jo

I used to have a girlfriend named jo.

Was well worth a second cup.

Yes, we're past the 2nd beer... :

[Lancelot]

The Flies, floats and, you know, is a pretty good strategy

Real estate was good to me as long as I bought at a discount and didn't over improve.

Quote:

Originally Posted by Patrick One way to look at home ownership is as a forced savings plan - you have to make the payment every month, then when you sell you get the money back in a big lump sum.* How many people would take the money they saved from renting and invest it?* Not many I know.

This is an excellent point.*

Here's an additional reason to own:* A lot of people (like me) want the security of being in charge of their own housing.* I can have pets, paint the walls lime green, or knock down walls if I want to.

And when you're a renter, there's not much incentive for either you or your landlord to fix a place up to make it nice.* Now that I'm my own landlord, I get great pleasure from puttering around my house and gardening.* My house has my style (which means, of course, lots of lime green paint and demolished walls!).* *:

[cute fuzzy bunny]

Heck you could have lime green pets.

Cant do that in a rental.

Patrick...you HOPE you get the money back in a big lump sum

[honobob]

Quote:

Originally Posted by cute fuzzy bunny Heck you could have lime green pets. Cant do that in a rental.

Minty fresh.

[honobob]

Quote:

Originally Posted by Martha We used to own a home on the beach and sold it after a couple of years About 8 years later the same house sold again for nearly triple what we paid. (And the new owner tore down the house and built a new one ) So if we would have retained the house, we would have made a bunch more money.

Timing and location is the key.

[FANOFJESUS]

I think the Jonathan Clements article is on track. Alot of people think they are making money when they are not. How many people are going to sit down and add up all of these costs.

[skyline]

This is all interesting - but I think everyone should remember that we're coming off the best US residential real estate boom in recorded history - and one that has either only moderately or yet to correct.

Which is to say that we're all in a real estate 'high' of sorts...pretty much anyone that owned a home since the early to mid 2000's can do the math and determine that they made a killing (this would include me)

What I wonder about, thought, is how things might look going forward beyond this boom? Anyone out there have numbers on appreciation vs. maintenance/cost for their home for say, 1990-1998? This might be closer to what we're in for in the next 5-10 years vs. the last 5-10 years...

[TargaDave]

Quote:

Originally Posted by skyline What I wonder about, thought, is how things might look going forward beyond this boom?

Well, there have been plenty of reversion to mean graphs by one of the typical measures (rent to price or income to price, etc) bandied about recently. Throw on top of that some sea changes like an aging demographic and permanently higher utility costs, and you end up with things looking not-so-great for awhile. Oh well, the forced savings and the nesting factor will always make ownership desirable. My feeble prediction is that cookie cutter McMansions will become the true dinosours of the future. Maybe they already are.

What amazes me is the number of people I meet who have no clue on actually doing maintenence or upgrades considering the $ impact. For me it's always been sort of a "second job" (at least in cost savings) and source of entertainment. Just got done releveling an entire beach house on pilings. About 4 inches worth. Fun with a couple of 20 ton hydraulic jacks and a laser level. Sure beats becoming an internet forum junky

[OAG]

Quote:

Originally Posted by rec7 I think the Jonathan Clements article is on track. Alot of people think they are making money when they are not. How many people are going to sit down and add up all of these costs.

Wonder what his article would say if he was writing it today (in 2008) versus the original 2005 article?