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Home Ownership Overated?
Old 08-22-2004, 11:44 AM   #1
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Home Ownership Overated?

Is Americans worship of home ownership overated? I've been giving some thought to it lately and that owning a home doesn't fit into my lifestyle. I'm a single guy who very active. I'm hardly home at nights and on the weekends. I see people who own homes spending most of their free time fixing stuff, making home improvements, and taking care of the lawn. I really don't mind renting. Since I'm hardly home, the neighboors don't bother me. I have no need for extra space since I don't own that much stuff. Considering how much people spend on mortagage, taxes, and home maintenace is a house worth it for single guy?
I don't think I will get much of return on equity since I move often.
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Re: Home Ownership Overated?
Old 08-22-2004, 12:03 PM   #2
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Re: Home Ownership Overated?

I've debated the same thing. Admittedly, when I first did, it was almost as if I were attempting to subtely rationalize a feeling that I had "missed out" --i.e. most of my friends had gotten married andhosted "dinner" at their new digs--complete with the BMW, yadda yadda ya.

Lately though, I've been looking @ it like this. *If I can find a home that is equal to or less than what I am currently paying AND if the probability (need to understand how to objectify this) that the home's value will appreciate by say 6-8% annually, then this could be a good thing.

I haven't done the hard math yet, but my gut says that given my savings rate and 99.9% constant living expenses---I'm far ahead of those that have purchased.

I do believe that homeownership has a strategic fit in financial planning. *Too often, it's viewed as the natural next step, and people over-extend themselves---especially when they subscribe to the "rules of thumbs" for how much one can "afford".

As you know..there's a big difference in being able to PAY for something and being able to AFFORD it.

TD
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Re: Home Ownership Overated?
Old 08-22-2004, 12:04 PM   #3
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Re: Home Ownership Overated?

Hey !
This is always a tough one, and everyone has their own views, but the simple answer is that it is an individual decision. I'm a single guy, I bought a house a few years ago after looking for a place to rent, and running into a foreclosure house that was significantly cheaper per month than anything I could rent. Yeah, I needed (and still do !) to work on it, but I enjoy this (to a point...!!). Also, I've I've said before, my hobbies pretty much require a garage, and that's hard to get with a rental, never mind when the landlord comes in and sees what you've done to the floor ! Also, even though the mortage was cheaper than rent, the fix-up and upkeep probably levels that playing field, obviously excluding my own labor. I also rent to one of my buddies, which helps the bottom line a bit !
So, with all the ranting and raving discussions we've all seen over this issue thru the years, the simple answer is, it depends.
-Pan-
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Re: Home Ownership Overated?
Old 08-22-2004, 12:12 PM   #4
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Re: Home Ownership Overated?

Panhead -- Well put...

What was your experience getting the foreclosed property?

I've done some reading up on this---seems kinda risky.

TD
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Re: Home Ownership Overated?
Old 08-22-2004, 12:28 PM   #5
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Re: Home Ownership Overated?

Since I've made big money on real estate, and tend to buy low maintenance homes that dont require a lot of time and money to keep up, I guess I've gotten plenty of upside with very little downside.

I've made a 37% return on my first home, owned 15 years; 39% on my second, owned two years, 54% on my third home in seven years, and my current residence if sold today would net me roughly 30% more than I paid for it a year ago.

None of these are super cheap homes, so this is a real chunk of change.

My current place has a stucco exterior and a concrete tile roof. Its 7 years old. Other than a very small patch of grass, the rest of the quarter acre is covered in landscape fabric, which is covered with wood chips. The shrubs and other plants that pierce this are low maintenance, low water and everythings on an automatic drip system.

I'll have to replace the water heater in ten years, the furnace/air conditioner in ten to fifteen, and the kitchen stove and dishwasher in ten to twelve. I'll have to paint it in 3-4 years but then not again for 15. It'll never need siding or roofing. My yard work is ten minutes a week.

Or I could have spent roughly a half million dollars over the same time period on rent for similar properties with no return on that investment.

Currently having no mortgage, the entire sky and all the heavens could fall in and I'd still be able to live here for the cost of the property taxes every year. Nobody can throw me out or raise my monthly expenses.

Its not for everybody and not every area is good for owning a home. There are also a lot of bad homes and bad deals. The real estate "bubble" is also worth keeping an eye on.
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Re: Home Ownership Overated?
Old 08-22-2004, 01:04 PM   #6
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Re: Home Ownership Overated?

I've made a lot in real estate as TH has, but then we both live in a similar area of CA. If I were to do it again, I would have bought and sold houses more often just to keep rolling the money into nicer homes.

If I stay in this area, I might sell every 24 months if the market continues to increase. I will start buying cheaper houses and living off the difference. I've always bought low maintenance houses (except the one with the pool) or made them low maintenance.

But all said, I would certainly do it again. It has certainly increased my net worth. I've never had a high salary and am a single mom of 2 kids, so this is the way I have ensured that I can retire early.
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Re: Home Ownership Overated?
Old 08-22-2004, 03:23 PM   #7
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Re: Home Ownership Overated?

Buying a home can be a financial mistake, but from my experience this is rare. If you buy a house just before a local housing bubble bursts and are forced to sell before real estate climbs back, you can get into trouble. If buy a house and they rezone your neighbors property to become a toxic waste dump, you can get into trouble. If you buy a house and the neighborhood turns into the next gang war zone, you can get into trouble.

But most of us who have bought and sold homes can document that we have made significant return on our investment and beaten where we would have been if we had rented the same house. If you don't like doing yard work, you can hire someone. Yeah, it will cost you, but it costs your landlord too and you better believe he is passing that cost on to you. The same is true of all other housing maintenance.

On the other hand, if you are fairly mobile (moving more often than once every 5 or 6 years), the risk that the housing market drops in that kind of time frame is worth considering. The only people I know of personally who have had to live with housing financial disaster bought a big home in a city that was at the peak of a housing bubble (San Diego in this case). Then they both got layed off within a year -- just after the housing bubble burst. They had to move back to Phoenix to get work, but were in bad shape if they had to sell their San Diego home at a huge loss. Time is likely to bring the value of their San Diego home back eventually, but in the short term they have a serious problem.

Another thing to consider is whether you are comparing apples to apples. Rentals often come in smaller, plain vanilla forms that are not equivalent to the housing you might consider purchasing. If you don't need the features of the house that is for sale, then renting the cheaper apartment might be a good choice.
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Re: Home Ownership Overated?
Old 08-22-2004, 05:32 PM   #8
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Re: Home Ownership Overated?

I've seen plenty of people sell their homes at a loss in my area. I guess many people on this board don't live in the mid-west where vast expanse of open space makes it hard to sell used homes. Here in the mid-west, we have so many builders of new homes that used home sellers can't compete with packages offered by new home builders. I've seen friends forced to sell at loss when all the transaction costs have been counted.

I expect to move about every two years so I guess I fall into one of those rare expectation categories. I don't think two years is enough time for appreciation to kick in on a home.

I also hate house maintenance and yard work with a vengeance . My parents forced me to do a lot of it when I was young. I swore I never get sucked into it again. My parents were home improvements freaks. They were always doing so type of Bob Villa dream project. Guess who got to be their assistant? I curse Bob Villa name in my dreams. So unlike my parents, I do not wish to work 80 hour work weeks and come home to be a slave to my house. I like to have a life.
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Re: Home Ownership Overated?
Old 08-22-2004, 06:00 PM   #9
 
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Re: Home Ownership Overated?

I have owned 8 homes (or second homes) where I
and my family resided. Overall, I made money when
I sold them, but not a lot. The easiest to sell were
on the water, of course. Also, 8 homes over 32 years
is only a 4 year average. That's not much to get you
a big run up in price, unless you just get lucky.

John Galt
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Re: Home Ownership Overated?
Old 08-22-2004, 09:39 PM   #10
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Re: Home Ownership Overated?

Oh KB...back in '96 I darn near bought a bunch of mcmansions and rental properties down in the Folsom and Granite Bay area. The live-in girlfriend at the time nixed the idea.

I had already written an offer sheet for a 5000 square foot six bedroom house on an acre for $350k that was going to be accepted by the owner, who had to sell that week before the bank took the property.

That house just sold for $950k a few months ago.

I should have kicked her out sooner and acted...my "safe withdrawal rate" would have been about a bazillion dollars a year...
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Re: Home Ownership Overated?
Old 08-23-2004, 12:50 AM   #11
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Re: Home Ownership Overated?

Hi Tommy !

The foreclosure thing was interesting, I wrote about it before, but I'll review here. The property was foreclosed on by the bank and given to a realtor to sell. The original price the bank wanted was way more than the property was worth in the run down condition it was in, so it didn't sell. I went to look at it, and offered about 30% less than the asking price. There were 3 offers (actually bids) that the realtor had to bring to the bank. She called me the day she had to submit them, saying she was "worried" about one of them. I asked her if the one she was "worried" about was submitted thru her or another broker, she said it was another. She "indicated" what kind of bid might get the house, and it was just a bit higher than what I offered, so I did it. After I got the house, I saw the other bid, and it was exactly the same as mine $$ wise, but they had requested some junk in the yard be cleaned up before taking posession, yeah, right. Anyway, I had the property inspected. That was funny. The kitchen was disgusting and the inspector wouldn't even walk in the bathroom. The furnace was old, and when they turned the water on, every pipe and valve was dripping in the basement ! I wrote the bank a letter and got a few thousand more dollars knocked off the price ! I moved in with a buddy who did construction and we started gutting the place. It's getting there, but it still needs work. It's a nice, small flat lot, 10 minutes to mow, 10 minutes to shovel the driveway. Over the past few years, I've re-plumbed the entire place, re-wired most of it, remodeled (read, gutted to the studs) the kitchen
and bathroom, and am half done the family room.
If I hadn't been doing this myself, this would have never
been worth it. But, the house is now worth over twice what I bought it for, and about 70% more than what I have put into it. Another note, I would not have attempted to do this with a live in girlfriend or wife, this house was simply too bad, and only had one bathroom which had to be gutted. Most women that I know simply would not have put up with that, and I don't blame them.
It's not for everyone, but if you don't mind some scraped knuckles and physical labor, it can be rewarding. (Yeah, I know, work, yuck !!!) !!

-Pan-
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Re: Home Ownership Overated?
Old 08-23-2004, 03:50 AM   #12
 
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Re: Home Ownership Overated?

Hello panhead! I've had some nice rides this summer.
Also some bad ones. Not able to handle the adverse
conditions like I used to. For now I am continuing on
though.

I really admire people who can do what you are doing with rehabbing "fixer-uppers". There is a lot of money in this. I have always had two large handicaps in that
I am hopelessly unhandy and very fussy. Now you can add old and lazy. That was one of the reasons I bought
our Texas condo. Pristine condition and fully furnished.
Nothing to do and nothing to move. Just settle in.

John Galt
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Re: Home Ownership Overated?
Old 08-23-2004, 08:48 AM   #13
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Re: Home Ownership Overated?

TH, you've done way better than I have....but I think I've done pretty well. The last house I bought in Folsom sold for 150,000 more than I paid and the new house I just moved into in March has gone up in value 110,000 already.

The equity in my house is what will allow me to retire early. But I have to sell to do it. THe rest of my net worth is not more than 150,000 which is not enough to retire on.

I'd be happy to buy a semi fixer for the next house (not like Panhead) and live off the proceeds of this house. We'll see, I still ahve 2 kids at home so I have to get them to leave first.......



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Re: Home Ownership Overated?
Old 08-23-2004, 09:54 AM   #14
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Re: Home Ownership Overated?

Quote:
Another thing to consider is whether you are comparing apples to apples. Rentals often come in smaller, plain vanilla forms that are not equivalent to the housing you might consider purchasing. If you don't need the features of the house that is for sale, then renting the cheaper apartment might be a good choice.
This is what I keep running into. As a single guy a 750 sq ft apartment is plenty for me, but when I think of buying I would hate to buy less than a 3-2-2 for resale considerations and the possibility of marriage and family (although no apparent danger of that in the forseeable future). And I hate small bedrooms.

Yeah, I think continuing to rent a 1-bedroom apartment is cheaper for me considering what I would buy. (Although next move I'll probably run a few numbers and check out condos, mobile homes and prefab homes as alternatives...not real excited about the idea, though.)

I've apparently been real lucky with quiet neighbors--I hardly ever see them or hear them.
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Re: Home Ownership Overated?
Old 08-23-2004, 10:11 AM   #15
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Re: Home Ownership Overated?

[quote]Since I've made big money on real estate, and tend to buy low maintenance homes that dont require a lot of time and money to keep up, I guess I've gotten plenty of upside with very little downside.

I've made a 37% return on my first home, owned 15 years; 39% on my second, owned two years, 54% on my third home in seven years, and my current residence if sold today would net me roughly 30% more than I paid for it a year a

TH: If you lived in coastal So. Calif., those numbers would be on the low side.
Point being, Real Estate is very location specific.
Folks that live in a lot of the country, renting could be an option worth considering.
John Galt: If you had moved 8 times, and traded up each time, in the coastal areas of Calif., you would have a net worth that would probably take care of you, and your sons and daughters for life.
Location, Location, Location.
For the younger aspiring early retirement types, look at your local real estate market. If the history of the area and the potential for appreciation is not there, it is not an easy decision to buy versus rent.
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Re: Home Ownership Overated?
Old 08-23-2004, 10:19 AM   #16
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Re: Home Ownership Overated?

I think the reason why the numbers look a little low is because while I fixed every little thing that needed to be fixed in these places, I spent no big money on them nor did I do any major work. Never hired a contractor to do anything major.

I basically moved in, kept everything working, did lots of minor updating, and sold them when they needed a lot of work. Sort of like buying a decent car and driving it for ten years and selling it just before it needed a lot of mechanical work and a paint job.

That house I made 54% on? Needed new carpet, some new siding, a new roof, a kitchen update and 3 bathrooms updated, painting inside and out, a new deck within a few years. Among other things. Probably about 80k worth of work.

The guy a couple of houses up from me who had completely remodelled his house and landscaped his property, for about 200k, got 200k more for his. So his bottom line buy/sell price ratio looked pretty good.

But I killed him in total gains.
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Re: Home Ownership Overated?
Old 08-23-2004, 10:20 AM   #17
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Re: Home Ownership Overated?

Quote:
This is what I keep running into. As a single guy a 750 sq ft apartment is plenty for me, but when I think of buying I would hate to buy less than a 3-2-2 for resale considerations and the possibility of marriage and family (although no apparent danger of that in the forseeable future). And I hate small bedrooms.
1 & 2 bedroom condos seem to do well in urban areas and some other areas tight on land with heavy traffic (i.e. Silicon Valley or perhaps some ski communities). In most other places they don't even seem to keep up with inflation though houses don't generally do well there either. Here in Silicon Valley I've got friends who doubled their money (and more) on condos in the last 5-7 years plus they are now paying monthly well under what even lower quality apartments would cost.

If you are in one of those kinds of locations and will remain there for 5-7 years and more then it may make sense to buy. The quality of condo construction and finish is often (though not always) better than that of rental aparment buildings. The noise isolation is also better.

3-2-2 == 3 bedroom + 2 bath + 2 ????
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Re: Home Ownership Overated?
Old 08-23-2004, 10:24 AM   #18
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Re: Home Ownership Overated?

Quote:
... if the probability (need to understand how to objectify this) that the home's value will appreciate by say 6-8% annually, then this could be a good thing.
Yup, quantifying this is tough, but here are some of the factors to consider:

-- The rate of home price increases vs rent prices increase. Nation wide, prices have been rising much faster than rents since 1996. To me, this indicates that price appreciation isn't sustainable.

-- The affordability index (the percentage of residents who can afford median-priced homes in the area). This has reached a record low (about 11%) in parts of CA. The last time it got that low was in 1989, and you probably know what happened then.

-- The ratio of price to rent. This is sort of the P/E ratio of the real estate world. If you're looking to buy for rental income, then you want to evaluate the "cap rate" which is a similar idea. Again, the numbers for my area suggest it's a time to sell rather than buy.

-- Supply / demand numbers. Compare the number of new housing starts to population growth and job growth. Even in the "hot" growth areas, like Orange County CA, supply is starting to catch up to demand. Yet another bad sign for appreciation potential going forward.

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Old 08-23-2004, 11:14 AM   #19
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Re: Home Ownership Overated?

Wab:

Ah, the "Cap rate". It is already out of whack in most areas of Calif. (Imagine what it will be if interest rates drift up).

My only point in posting to TH's posting about the profits he had made in real estate, is that it is not unusual at all in Calif., and should not be a green light to folks in other parts of the country to dive head-long into real estate.
The house that my wife and I live in will probably never be worth more than it is now. (Plugging in inflation).
But I'm too damn old to change now. We're on the rim of a canyon with a view of the Sierras. My next move will be to either the "funny farm", or the great beyond.
If I were younger, and had good sense, I would probably sell and get the hell out while the going was good.
Again, my advice to all the younger posters, don't invest with a rear view mirror. A lot of the profits, as in the year 2.000 have already been made.
Good post, Wab
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Re: Home Ownership Overated?
Old 08-23-2004, 01:05 PM   #20
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Re: Home Ownership Overated?

Jarhead is correct about housing in other parts of the country. In many areas of my state (Iowa), housing prices have been rather stagnant for years. Example - here is a nice house for a young family. The asking price is $120,000 but they'll be lucky to get $100,000. All floors are hardwood and there is much woodwork throughout. There are three bedrooms, three bathrooms (one newly remodeled), and a large den with a wall of windows overlooking the large backyard. There's a built in hutch, many beveled glass windows, new roof, new gas fireplace, newly remodeled kitchen, new sidewalks (corner lot), and a new fence. The attic is walk-up. It's three blocks from a beautiful park on a large lake, three blocks from a private college (with many free things to attend) and three blocks from an elementary school. Property tax in 2003 was $1186.

Here's the outside:


The inside looks like this:


Nice smaller homes in this college/lake town can be had for around $80,000. In smaller surrounding communities the prices are much less. I don't think many are accumulating assets via their personal residence here, except maybe those who bought lake front homes years ago.
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