Poll: Importance of home ownership

[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]

Quote:

Originally Posted by FIREd 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by MichaelB 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]

Quote:

Originally Posted by marko ...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!

Quote:

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).

Quote:

Originally Posted by MichaelB 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]

Quote:

Originally Posted by 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.

+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.

[ziggy29]

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.

[W2R]

Quote:

Originally Posted by ziggy29 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.

+1

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 know for a fact that for me, here in New Orleans, my spreadsheets clearly show that buying a house was a no-brainer and was a huge help towards attaining FI. The numbers say it clearly.

On the other hand, I doubt my spreadsheets would give me the same results if I lived in an area with high, near speculative real estate costs such as San Francisco.

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.

[easysurfer]

For me, it's not about doing the numbers, but if I toss someone out, the phrase "Hey! Get out of my place!!" sounds a lot better than "Hey! Get out of my area which I'm renting"

As you can tell, I voted for having a home as important.

[samclem]

Quote:

Originally Posted by W2R 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.

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.

Quote:

Originally Posted by W2R 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.

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.

[MichaelB]

Quote:

Originally Posted by W2R 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.

+2

Better advice is hard to find. Over the years I've been a tenant and a homeowner. Both made sense at different times, and I think the non-financial aspects can be just as important in the decision process.

[jkern]

Quote:

Originally Posted by youbet 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....

[HFWR]

Even if you "own" your home, you are, in reality, renting it from yourself...

[kcowan]

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.

In our youth I think it is a good enforced savings plan. And if you have a great rate for 30 years, so much better. But for the LBYM crowd, it is just another investment category that happens to have high frictional costs, and high unpredictable costs of maintenance. Yes there are off-setting benefits (as there should be).

But I would be loath to categorize it as FI given the variability in the last 10 years...

[youbet]

Quote:

Originally Posted by jkern 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....

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.

I'm a happy home owner. I like living here and it's worth the cost to me. But I definitely don't own because the house is an "ace in the hole." It's too illiquid and the value has been fluctuating too much. And I think home values will continue to be more volatile than historical norms.

[dallas27]

Home ownership is a good thing, supposing it makes sense for your lifestyle, and only if you are accruing equity at a higher rate than you are paying interest. It really just a forced savings vehicle, that comes with maintenance.

But you gotta live somewhere, might as well be your own landlord and pocket the profit.


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