WSJ: Why Your Home Is Not the Investment You Think It Is

[CCdaCE]

Quote:

Originally Posted by brewer12345 <snip> ... but its not hard to run up a serious tab on rennovations and maintenance.

My gripe is they're putting $300k into a $300k house, ON TOP of maintenance. ...in table 1.

In table 2, putting $150k into a $50k house. ON TOP of maintenance. And THEN, showing a $103.5k loss.

NUTS.

How can there be any other explanation?

I've put less than $5k into my house in almost 4 years. It was purchased at $117k, now it's appraised at $140-ish, for tax purposes. Maybe it's worth slightly more.

To me, the article is saying something similar to "buy a $10k car, put $10-30K into it, and watch it depreciate to $5k."

Am I the one who's interpreting this incorrectly? ... Am I Nuts?

-CC


Edit: maybe I need to back off on the caffeinated beverages.

[al_bundy]

Quote:

Originally Posted by CCdaCE Must be the midwesterner in me. I still say if you're droppin' $50-70k into a $50-300k house, you're nuts. But, it's your life, your money, etc. If renovation is something you're doing to sell the place, and that is seen as necessary, then it's a different story. If I have to dump $50k+ into a house to get you to consider buying, now THAT is just a crazy MARKET. Right now, I'm putting $2k into a bathroom. Ahhh, real estate. -CC

http://www.expo.com/stores/storelocator.aspx

this place was extremely busy the last few years. At least the NYC stores. They are a division of Home Depot. The NYC Home Depot stores are a mix of regular HD and Expo in the product selection.

bought my apartment in NYC in 2003 for $135,000. Put in $30k into it. $5000 walls, $12000 kitchen, $8000 bathroom and the rest here and there. With the renovations i can probably sell it for $250,000. $700,000 houses were $250,000 in 1997 around here. My guess is a lot of people took out HELOC's to put a lot of money into their homes because i've seen some pretty average people there.

it was one thing when anything sold around here, but now at current prices a lot of people want to move in and not do anything. and they want something that is modern looking. that means if your house/apartment has a kitchen/bathroom or whatever from the 1960's or 1970's you are going to take longer to sell, will need to cut your price or whatever.

there is so much choice here from 100 year old homes to newly built ones and everything in between that it's also a little like keeping up with the joneses.

another reason is to do it for feng shui or just for yourself since it's nice coming home to something that is nicer looking than what my place looked like when i first bought it. 50 years of paint. personally i hate carpet so if i ever look at a place with carpet i'm calculating how much it's going to cost to rip it out and replace it with wood.

my inlaws bought a home for $235,000 in 1994 and have put around $100,000 into. almost everything is redone including knocking down walls and european almost everything because they like the european look. Recently they bought a $350 kitchen faucet just because they like the look oof Grohe better than Delta.

[Sam]

I noticed the high amount of repairs & improvement too. It's either a mistake or an exaggeration.

Aside from that, I think the article is good.

[al_bundy]

Quote:

Originally Posted by CCdaCE My gripe is they're putting $300k into a $300k house, ON TOP of maintenance. ...in table 1. In table 2, putting $150k into a $50k house. ON TOP of maintenance. And THEN, showing a $103.5k loss. NUTS. How can there be any other explanation? I've put less than $5k into my house in almost 4 years. It was purchased at $117k, now it's appraised at $140-ish, for tax purposes. Maybe it's worth slightly more. To me, the article is saying something similar to "buy a $10k car, put $10-30K into it, and watch it depreciate to $5k." Am I the one who's interpreting this incorrectly? ... Am I Nuts? -CC Edit: maybe I need to back off on the caffeinated beverages.

last year i was running numbers in my head of buying the cheapest home in the NYC area i can find with a good sized lot and in a good neighborhood. Find something with 30 year old kitchen and bathroom. then over 15 years or so gut it out and remodel with top of the line stuff. $400,000 house will probably cost $150,000 to remodel. i would do this mostly for myself

they had this on cnbc a while ago. bathroom remodels are a huge growth industry over the last 20 years or so and people are spending this kind of money mostly to have something nice.

when i lived down south almost everyone had a truck. i would stick with a cheaper car and spend the money home improvement in a heartbeat since a car or truck depreciates and i think it's a waste of money buying a truck that commands a price premium just because people are willing to pay it.

[teejayevans]

Quote:

Originally Posted by CCdaCE My gripe is they're putting $300k into a $300k house, ON TOP of maintenance. ...in table 1. In table 2, putting $150k into a $50k house. ON TOP of maintenance. And THEN, showing a $103.5k loss.

Ignoring the particulars, I believe the it does make a valid point that houses may not be
a sure fire investment of years past, especially if you take into account the taxes, interest,
ongoing maintenance, insurance, upgrades, etc, especially short term.
And anybody dealing with Katrina aftermath probably would agree with me.

I would think land might make a better investment, don't have the above extra fees, and
probably less downside.

Of course I'm 2-1-1 in the real estate world, with no BIG wins, so what do I know
Tom

[brewer12345]

Quote:

Originally Posted by teejayevans I would think land might make a better investment, don't have the above extra fees, and probably less downside.

Much harder to finance and a lot more volatile, from what I understand. But I would probably jump on land first, personally.

[wabmester]

Quote:

Originally Posted by brewer12345 But I would probably jump on land first, personally.

Whenever I think about buying land, I always remember that it's just a bunch of dirt unless I can find another sucker to buy it from me later. A bunch of dirt that comes with annual taxes and personal liability.

When you think about investing in real estate, remember Detroit. Nice houses and land transformed into worthless sticks and bricks on a bunch of dirt.

[brewer12345]

Quote:

Originally Posted by wab Whenever I think about buying land, I always remember that it's just a bunch of dirt unless I can find another sucker to buy it from me later. A bunch of dirt that comes with annual taxes and personal liability. When you think about investing in real estate, remember Detroit. Nice houses and land transformed into worthless sticks and bricks on a bunch of dirt.

Yup. But I also think about:

- Land I could have bought on Vieques for a song that is worth megabucks now
- All the moolah dad made on his land speculations when we were growing up
- The family fortune built by DW's stepmother's family. They bought land outside of the city they live in and correctly guessed the path of development.

[wabmester]

Quote:

Originally Posted by brewer12345 Yup. But I also think about: - Land I could have bought on Vieques for a song that is worth megabucks now - All the moolah dad made on his land speculations when we were growing up - The family fortune built by DW's stepmother's family. They bought land outside of the city they live in and correctly guessed the path of development.

Yeah, the land is just a token for supply and demand. That's why I like waterfront. The demand is always high, and they ain't making any more. Worst case, it's a nice place to camp out.

[Sam]

Quote:

Originally Posted by wab When you think about investing in real estate, remember Detroit.   Nice houses and land transformed into worthless sticks and bricks on a bunch of dirt.

Alternatively, remember SF, or NYC.  Come on, there's a balance.  Nothing is absolute good or bad.  It all depends on location, time, and circumtances.

[wabmester]

Quote:

Originally Posted by Sam Alternatively, remember SF, or NYC. Come on, there's a balance. Nothing is absolute good or bad. It all depends on location, time, and circumtances.

Yup, kind of like stock picking. Sometimes stuff is cheap for a good reason.

[justin]

I don't know how unrealistic the $150,000 or $300,000 for remodeling really is. Over the course of 30 years, you're talking 2-3 full remodels to keep your place "updated".

What's the difference in a 12 year old outdated kitchen and the original 30 year old circa 1977 outdated kitchen? Not much except the white appliances instead of the avocado/gold appliances. If it isn't new, it's old.

After 10 or 15 years, your remodels you did will need to be re-remodeled to keep up with current trends. Today you can remodel, but in 2017, when you go to sell your house, it will have kitchens and bathrooms bordering on outdated. Granite countertops may be sooooo 2000-ish by then. Who knows? Intricate tilework/stonework bathrooms may be out in favor of stainless steel/modern bathrooms.

1977 wood paneling? Gotta go. 1980's era wallpaper - gotta go too.

I did find it surprising that the article included massive maintenance expenses of $300/month, AND the huge capital improvement expenses.

[CCdaCE]

Quote:

Originally Posted by al_bundy last year i was running numbers in my head of buying the cheapest home in the NYC area i can find with a good sized lot and in a good neighborhood. Find something with 30 year old kitchen and bathroom. then over 15 years or so gut it out and remodel with top of the line stuff. $400,000 house will probably cost $150,000 to remodel. i would do this mostly for myself <snip>

Yeah, that's what I'm talking about... spending fractions of what a home is worth not multiples.

Quote:

Originally Posted by justin I did find it surprising that the article included massive maintenance expenses of $300/month, AND the huge capital improvement expenses.

Yep, double whammy, to me.

I'll shut up now.

-CC

[eridanus]

Are those inflation adjusted numbers? Spending $20,000 in 1975 is a lot different than spending $20,000 in 2005.

[CCdaCE]

Quote:

Originally Posted by eridanus Are those inflation adjusted numbers? Spending $20,000 in 1975 is a lot different than spending $20,000 in 2005.

No.

From slightly above the 2nd table....

Quote:

"The Costs of Home Ownership" table is a simplified rundown on a typical single-family home -- a house that was bought for $50,000 in 1977 -- based on national appreciation rates as reported by the Office of Federal Housing Enterprise Oversight (OFHEO). Included are modest estimates of other home-owning costs (not adjusted for inflation). To keep things simple, there are no transaction costs, no additional borrowing to finance improvements and no refinancing costs, all of which would drive the expenses even higher. It's not a pretty picture.

Bold/underline emphasis mine.

So, that makes the comparison even worse if the comparison is not weighted for the "time value of money" or inflation or both.

Apparently, I can't shut up.

-CC

[tryan]

Another gross miscalculation is the fact that the renovations are assumed to add NO value to the property. Try selling your 1950 era ranch with NO upgrades ... good luck.

Of course the upgrades added re-sale value. I tell people they'll get HALF the money back. Most do not like hearing that (they believe the contractors who say 100-125% of the rehab costs are re-cooped) ... just been my experiance.

[chinaco]

Just a thought.... heck maybe half thought through at that.


I have wondered if one would net out better-off over the long haul if they buy new and sell every 10 years... before things begin to wear out. The cost of the sale/buy can be the commissions. Plus there is the hassle and cost of moving. (ignoring other important issues like location, etc... that might need to be factored in to the decision)

Since kitchens and baths cost a fortune to refurb, plus new roofs, etc... It seems like there might be some advantage to doing so. I have not run any hypothetical numbers. But it might be worth a look.

We are going to down-size in about 4 years. Our house will be about 15 years old. It will still have curb appeal and be new enough that the kitchen, bathrooms, roof, etc.... are still in good shape.

Any thoughts?

[maddythebeagle]

Quote:

Originally Posted by chinaco Just a thought.... heck maybe half thought through at that. I have wondered if one would net out better-off over the long haul if they buy new and sell every 10 years... before things begin to wear out. The cost of the sale/buy can be the commissions. Plus there is the hassle and cost of moving. (ignoring other important issues like location, etc... that might need to be factored in to the decision) Since kitchens and baths cost a fortune to refurb, plus new roofs, etc... It seems like there might be some advantage to doing so. I have not run any hypothetical numbers. But it might be worth a look. We are going to down-size in about 4 years. Our house will be about 15 years old. It will still have curb appeal and be new enough that the kitchen, bathrooms, roof, etc.... are still in good shape. Any thoughts?

well...sure....Seems like most places that I have ever looked at needed some "improvment"...all the ones that were reasonably updated werent for sale...I wonder why I figure any improvements to my place is simply for my enjoyment over the years...I would probaby think much differently if I wasnt planning to be here longer term....

By the way, I enjoy Tryan's and other RE gurus comments on all of these issues....good stuff...

[Andre1969]

Lessee...

I've been in my house about 3 1/2 years now. Here's a quick, off-the-top-of-my-head, rundown of the expenses I've incurred...

$50: materials to re-stain hardwood floor in one of the bedrooms
$50: materials to fix a broken window (window pain, the little metal triangles that hold it in, window putty, wire for the pulleys, etc
$20: parts to replace the innards of the toilet
~$250: call to have the plumber come out and replace the sink drainpipe
~$250: call to have the plumber come out and fix a leaky pipe to the water heater
$5.00: roofing tar to fix a rotten, leaky spot in the roof. I was able to scrounge around and find everything else I needed: shingles, plywood, nails, flashing, etc, so I only had to buy the tar.
~$500: materials to replace about 56 feet of stockade fence. I put it up myself. Included 4x4 posts, 6x8 fence sections, heavy-duty screws, and 2x10 boards across the bottom to make the fence taller
~$90: 3 cubic yards of topsoil, delivered by myself, using my pickup truck (3 separate trips)
$240: new exhaust system, when said topsoil caused truck body to sag far enough to pinch the exhaust system between the bed and rear axle, causing it to break. First, the tailpipes fell off. Then the muffler. It was rusty anyway, but those topsoil loads definitely sped up the replacement. A cubic yard of topsoil weighs about 2700-2800 pounds. There's a sticker in the truck's glovebox that says "bed capacity: 864 pounds". Note to self: don't do that again!
$50: had to have an electrician I knew come out and replace a breaker in the circuit box
$28,000: new 24x40 4 car garage, plus roughly 200 feet of gravel driveway, plus running wiring roughly 150-175 feet from the house to the garage, underground.

I'm sure that I've missed a few minor things here and there, so figure maybe $31000 tops. For 3 1/2 years. So yeah, once you include that big garage I had built, I'm coming in at around $8850 per year!

[tryan]

Quote:

$28,000: new 24x40 4 car garage, plus roughly 200 feet of gravel driveway, plus running wiring roughly 150-175 feet from the house to the garage, underground.

Bet you gain ALL of this one back on re-sale! 8)

There are some rehabs which give back more than they cost (e.g. fireplace addition is another in most markets).