WSJ article on the American myth of homes as investments

[egoldberg]

http://online.wsj.com/article/SB124336746233955539.html

Glad to see that busting this mythology is starting to get some serious press.

Comments

[patoadam]

Annual return: Just 4.1% a year....And real estate often costs 2% or more a year in property taxes, condo fees, maintenance, insurance and the like.

So you get a return of about 2% a year. A traditional mortgage with 20% down gives 5x leverage, for a 10% annual return. Plus your profit is almost always tax-free, and your mortgage interest is tax-deductible. A pretty good deal, unless house prices are dropping.

[catsittingstill]

I am, for 10% less than my old rent payment, living in a much nicer, more conveniently located place--a place, furthermore, that I can change around if I like, as I like, without having to do any dance of deference with a landlord.

That's what I thought buying a house was all about. Investment? What, it's supposed to be an investment *too*?

[scrambledeggs]

Exactly. I pay around 2x what we were paying in rent, but also have around 2x the square footage, and can do whatever we want to the interior of the house. And unlike houses I rented in the past, no landlord is going to tell me I have to move at the end of a lease because a) they're moving back into the house, or b) they're selling the house. (or c they're getting foreclosed on, which fortunately never happened to me...)

Investments are like gambling. Sure, if protecting my cash were my primary goal, there are a lot of better places I could have put our down payment money over the past 18 months. Like in a mattress. But the bottom line is that as long as I can pay the mortgage on this place, nobody's going to kick us out, we can do what we want, and our payment won't go up until the ARM starts adjusting in another 5 1/2 years. Unless you happen to be in a rent-controlled place, you can't say that about the home you're renting.

[scrambledeggs]

oops, I didn't expand on the "investments are like gambling" comment

[patoadam]

"If you bet on a horse, that's gambling. If you bet you can make three spades, that's gaming. If you bet that IBM will go up three points, that's investing. See the difference?"

That's meant to be just an entertaining quote. I invest, usually profitably, and I don't gamble.

[jhitchin]

That's the only part of personal finance books that I just loathe. They say, "You can ONLY get rich if you own your own home." There's no other way, in their minds. Plenty of condo owners who are getting poor quickly, though.

[egoldberg]

Parenthetically, note #1 city in visual on right of page:

http://money.cnn.com/2009/05/22/real_estate/renting_buying.moneymag/index.htm

[madfilkentist]

Saying that any given type of investment is automatically "good" or "bad" is meaningless. If you're going to invest in something, whether it's stocks, real estate, or gold, you have to look at whether it's overpriced or underpriced at the present time, and you have to outguess other people. If everybody knew it was underpriced, that would correct itself very quickly.

I haven't been spectacularly successful as an investor, but my best investments were made by noticing which way the herd was going and betting the other way. My worst ones were made on the advice of my stockbroker (getting totally wiped out twice!).

[hitchhiker]

definitely! owning a home is a great thing - as long as you look on it as a place to live in. maybe if more people got that, homeowner's associations would finally be wiped off the face of the earth.