So far your arguments have all been shot down. What's unfortunate for you is that you've read a couple of articles stating that a home shouldn't be considered an investment, and made the jump that it means renting is a better option. Even the guy that's considered the guru on this philosophy owns his house. The analogy I made is an exaggeration of what you are claiming is the smart thing to do. Just keep paying your rent buddy. And keep telling yourself that you're doing the smart thing.
I hate to interrupt this important internet fight but... Anyone else surprised oil hasn't shot through the roof the last couple of days? The US is sending a fleet of warships, along with Egypt and Saudi Arabia, to Yemen to intercept an Iranian fleet delivering arms to Houthi rebels. In the past this is something that would send oil sky rocketing, but not so here. I doubt anything comes from this but the potential for a powder keg is tremendous. Ironically while all of this is going on we are working out this ridiculous deal with Iran to let them keep working on nuclear power in exchange for lifting sanctions.
Food for thought: A house (most likely) is a depreciating asset. Unless you (see next point) As an investment you need to maintain a home to the condition in which it was purchased in the eyes of it's market. So over time you're replacing or restoring appliances, windows, a roof, landscaping and doing updates to the home to stay current. Suggestions for general maintenance are 1% of the purchase price or $1.00 per square foot on an annual basis. Obviously this can vary depending on how well kept or updated the home will be. The stock market returns around 8% historically. What did your equity make you last year? Anybody using a realtor to sell? Well there goes 5 to 6% off the top. There are many variables to be considered and usually people don't do a deep dive into the cost analysis of owning a home. Just keep in mind that the US economy is built on and dependent upon people buying and owning homes so any rent vs buy information out there will be suggesting or advocating that buying is the way to go.
That's a myth. There is plenty of room to store oil. But more to my point, pushing supply and demand aside, in the past a move like we are seeing in the Gulf of Aden would be reason alone to send oil to the stratosphere.
Nothing has been 'shot down.' You're just beating your chest and telling yourself you're right. unfortunately we can't have an intelligent conversation if you don't understand why your analogy is terrible.
Exactly. There are many reasons to justify purchasing a home, it being a good investment is not one of them.
So Watson, according to the studies what's the dollars per year difference between renting for 60 years (18-78) as opposed to a 30 year mortgage and all the associated costs with home ownership? Investing aside
I haven't seen any studies that really break it down like this. Unfortunately, it's a pretty new concept fighting a well entrenched paradigm (see how defensive the homeowners get in here). But Shiller gives an example. If you and I each have 250k. You buy a home for $250k cash and I invest my $250k in the S&P 500 and rent a $1000 a month house. Even with my rent growing at 2% inflation each year after 20 years I will have a portfolio of $330k in real terms. You will still merely have a house worth $200k in real terms. So that's a $130k difference and the scenario doesn't even take into consideration taxes, repairs, insurance and most importantly interest fees. I think you will eventually see the government jumping on this wagon as the last housing collapse showed the long term issues with programs like Fannie and Freddie Mac. Then we will start seeing more research on the subject.
1. Good luck finding a $250k house to rent for $1k/month 2. Why is my $250k house only worth $200k 20 years later? 3. What interest fees would someone owe if they paid cash for a home?
watson sounds like a broken record at this point. Does not address anything brought up in here and keeps citing the same article over and over. But I guess I'm just too stupid to understand why you can't own a home AND invest like watson does in his renting scenario. FWIW I made 40K off my last home after owning it for 3 years (HEY LOOK AT ME!). Although, that's probably not typical. I bought it before the natural gas boom in Northern PA.
I'm putting down $250k for the house? Daaaaamn. So we're comparing a situation in which I could either have a $1.25M home, or invest that all and slum it up in a $1k/month shithole?
Why is this hypothetical person not financing their purchase? You said it's a $250k all-cash purchase, with a property worth $200k in real terms down the road. But, this isn't how the world works. Sticking as closely to this hypothetical as possible while injecting some reality, a reasonable person would put down $50k for the $250k house, finance the remainder, and invest his/her extra $200k. Still better to rent?
1. People who rent tend to rent smaller homes than they purchase. 2. Because that's how it works. Home prices from 1890 to 1980 didn't even keep up with inflation. Only the housing boom brought homes to equal with inflation 3. You wouldn't. The example shows the difference if you never paid a penny in interest. Now imagine what the numbers turn to if you do have to pay interest through financing the home.
See my post above. If you're SPENDING $250k on the purchase of a home, it's probably not for a $250k home.
Exactly. Run the numbers. If you only put down $50k (financed the remainder) and invested your remaining $200k, AND had the house paid off in 30 years, tell me what you see.
What's the interest rate on the 200k in this scenario? A significant portion of your investment returns are going to be eaten up by your interest rate alone.
Investing at 8% and paying interest at 3.5% is still making money. Plus you know, the value of the house after 30 years and then never owing 1K/month to rent for the next 30 years of your life, what's equivalent to 360K more in your portfolio
The likely scenario would be a 50k down payment. Most people don't have $250k in cash. So if would be a 50k down payment earning essentially zero return versus 50k in the stock market.
Your last line isn't how investing works. It sounds logical but it isn't. And yes in this scenario the numbers would probably be closer together. However, I'm still starting with a 20% greater principal and getting a full 8% in compounding interest. That is a substantial head start, especially in the earlier years which make a big difference in the long term.
All you're changing is the starting numbers. It doesn't change the formula that creates the outcomes. It doesn't turn into the home being worth $1.25M and the investments being worth $330k.
I'm sorry, but it appears you're not understanding. A $250k down payment would not be for a $250k home.
To be fair, what this example ignores is that the person who paid $250K cash, now has $1,000 per month to invest over the next 20 years. Even with zero returns that adds up to $240k before adding the value of the house.
In the example the $1,000/month in rent is coming out the $250k investment returns. So the contributions are the same. There isn't an additional $1k being contributed by the renter.
Flawed. 2 different initial outlays. Option A: buy $250k home cash (which would be a poor decision since borrowing is so cheap right now) Invest $1000 ( which option B calls rent) per month and assume 7% returns...compounded monthly . that's around 520k. Plus your $300k home. Boom.
Nope. The rent is being paid out of the original $250k. There is no additional contribution by either party.
Additionally, if your rent is coming out of that 250k (or the interest on it) you lose the "compound" part of "compound interest." If your 250k returned you 12k a year and you spent it all on rent then after 30 years you'd have... 250k. Haven't matched inflation, and that doesn't even in factor down years where you lose money and have to eat into the principal.
Well the Khan Academy has made an excel spreadsheet you can download for this. I based the results on the following: Buyer: $250k house 15 year note 3% interest rate Renter: $250k house $2k rent 2% inflation on both sides. 0% assumed annual appreciation on the house (this could easily be 2-3%) 6% annual return on cash investments It actually came out a lot worse for you than I thought
Obviously the scenario isn't realistic on the surface. It's used to highlight a best case scenario for home ownership. The argument for home ownership is generally you no longer have to pay to live in your home. This shows even if you avoid interest completely you are way behind. The more realistic scenario is the down payment situation. But that is even worse for home ownership as your initial principal is locked in an investment not providing a return. In this scenario both parties have to make additional contributions. But I'm afraid you don't understand why those two posts aren't contradictory
what? That after 20 years I have more money than you as a buyer than you as a renter? If you're trying to say that I am arguing that buying a home is an investment, you're wrong. This started by me pointing out that saying it's not an investment is misleading. Meaning, no, it's not an investment, but in places other than SoCal or Vegas, buying is the better option.
You would return more in the first year than you would spend in rent. Obviously it's based on long term return rates to cancel out the ups and downs of the market...
I can't believe people are actually having real conversations with him at this point. His pride in life is being a "troll". You'll never convince him that he is wrong.
Also someone should tell all the wealthy people that own their homes that they are stupid. Watson from the internet knows more than them about this stuff.
i don't know where you got $700 more. I just based the rent on $2k per month which is significantly less than the generally accepted rate of 1% of the value of the house.
What is your mortgage payment? I can't see your data from your spreadsheet so I assumed a 200k mortgage would be around $1300 something.