A house is an investment- True or False

[AgentDrazenPetrovic]

This was brought up in another thread.

Do you believe a house is an investment? Pretty simple question, complicated answer.

I believe that houses are investments since the price fluctuates and can go up and down depending on market conditions. Therefore, like any investment, there is inherent risk for a total loss.

 

[Dumpy]

This was brought up in another thread.

Do you believe a house is an investment? Pretty simple question, complicated answer.

I believe that houses are investments since the price fluctuates and can go up and down depending on market conditions. Therefore, like any investment, there is inherent risk for a total loss.

definitionally, they count as an investment. But I believe that NO ONE should buy a house BECAUSE they think it is a "good investment." It is your house. Use it. Live in it. Hope to sell it for what you paid for it. Anything else is an unexpected bonus.

 

[shookem]

it is a form of shelter.

 

[Dumpy]

If you are looking for an investment, but stocks. Buy bonds. Buy art. Buy comic books.

Don't buy a house.

If you buy a house as an investment, then you think of it not as living space, but as a canvas that needs "improvement" for resale.

Also, I firmly believe that people who buy up multiple houses as "investments" contributed heavily to the housing bubble. Why did the price of condos in Miami Beach skyrocket? Because rich folks bought them up even though they don't live in them. Again, you want an investment, spend your money elsewhere. Think of your house as your home, first and foremost. If you sell it for a profit, hooray. But don't make that the driving force in buying a home to begin with.

 

[AgentDrazenPetrovic]

it is a form of shelter.

that you can profit from, therefore its an investment. unless you want to live in the same house for your entire life, then it is an investment because there will be a time you have an exit strategy from it.

 

[AgentDrazenPetrovic]

definitionally, they count as an investment. But I believe that NO ONE should buy a house BECAUSE they think it is a "good investment." It is your house. Use it. Live in it. Hope to sell it for what you paid for it. Anything else is an unexpected bonus.

You have to consider the alternative.

If renting is "throwing your money away", then buying a house is investing it in something.

 

[Petey]

definitionally, they count as an investment. But I believe that NO ONE should buy a house BECAUSE they think it is a "good investment." It is your house. Use it. Live in it. Hope to sell it for what you paid for it. Anything else is an unexpected bonus.

There are several ways to look at it. And they greatly impact your life style.

I have a similar opinion with Dumpy, with a slight twist. Your 1st home is not a true investment... but every piece of property you buy after is an investment.

Now I have a friend who makes great money, and has moved from luxury apartment to luxury apartment (total of 7) in the past 5 years. Each year turning it over for a nice profit... BUT at the same time, it's as if the guy lives out of a hotel. Every room is white, has nothing other than 2 couches, a bed and 2 tvs.

There really are several ways to answer your question, and they vary based just on how people live and want to live their lives.

-Petey

 

[The_Lillard_King]

Depends who is buying it and for what purpose.

I agree with dumpy . . . anyone looking to simply invest money, housing is not even close to the best option out there. Anyone know historiclly what real estate increases each year . . . I think I heard it is about 5% yearly.

You can put your money in a safe gov't insured bond and make more than that . . . with no risk.

 

[shookem]

that you can profit from, therefore its an investment. unless you want to live in the same house for your entire life, then it is an investment because there will be a time you have an exit strategy from it.

by that def then anything is an investment.

if i improve my education, then i can get a better job - that's an investment.

if i improve my health, i can work longer and/or more often - that's an investment.

if i don't die, i'll make more money - that's an investment because i can make money simply by being alive.

if i sell my liver, i can make money off of it, it must be an investment too.

anything there is a demand for, could be considered an investment then.

 

[DaRizzle]

Im a realtor...Of course a house is an investment. You also just happen to live in it. I get people coming to open houses trying to be all slick about buying viewing their house strictly as investment. That is not the way to think of it. You buy it to live there, any house after that and then you can start talking about a real investment. The main things you want in your first house is one that fits your needs and is in a quality area so when the time comes you can easily sell it

 

[Petey]

Depends who is buying it and for what purpose.

I agree with dumpy . . . anyone looking to simply invest money, housing is not even close to the best option out there. Anyone know historiclly what real estate increases each year . . . I think I heard it is about 5% yearly.

You can put your money in a safe gov't insured bond and make more than that . . . with no risk.

Property is certainly a very sound investment, with a much higher percentage of return that 5%, if a proper plan is executed.

In many cases people put the min down, and try to use the land to generate monthly payments.

So lets say you want to buy a 500,000 usd building, you put 100,000 usd down (20%). After first year your investment is worth 525,000 based on your figure above.

So from your example above someone would need to make a 25% return on 100,000 to match that figure.

-Petey

 

[Petey]

by that def then anything is an investment.

if i improve my education, then i can get a better job - that's an investment.

if i improve my health, i can work longer and/or more often - that's an investment.

if i don't die, i'll make more money - that's an investment because i can make money simply by being alive.

if i sell my liver, i can make money off of it, it must be an investment too.

anything there is a demand for, could be considered an investment then.

I know many people whom consider a higher education degree an investment. Dropping 100,000 usd over 3 years better yield you a higher paying job, unless you are well off before hand.

-Petey

 

[Petey]

Im a realtor...Of course a house is an investment. You also just happen to live in it. I get people coming to open houses trying to be all slick about buying viewing their house strictly as investment. That is not the way to think of it. You buy it to live there, any house after that and then you can start talking about a real investment. The main things you want in your first house is one that fits your needs and is in a quality area so when the time comes you can easily sell it

Feel the same way. An solid investment has to be liquid. If someone offers you a contract on your primary home, and if you don't have it on the market, are you just going to pack and move? More cases not... but the opposite in lots bought after that.

-Petey

 

[Denny Crane]

Yes, it's an investment. The prices do go up and down, and generally you can sell when the price is higher than you paid if you keep it long enough. It's not likely to go to $0 like many investments, because it is backed by a real asset (land, building).

Buy a $100K house with 10% down. If it goes up 5%, you made $5K on a $10K investment, minus any negative cash flow. Leverage is a good thing unless you get upside down in the property.

 

[tlongII]

Houses/Property are great investments. If the population is growing you have an item that will have growing demand against it, thus increasing its value.

 

[mook]

It's an investment (anything you spend that much money on is an investment), but it's historically been a really lousy investment. Only twice in the past 100 years has there been a time when it earned much better than the rate of inflation, which makes sense. There's only so much money that people can spend on real estate, so it can't really rise much faster in price than, say, milk or butter or a car.

The two exception were right after WWII (lots of soldiers coming back and looking to start new lives) and the last 7 or 10 years (which is looking like a monumental bubble).

Wondering what the price on a given home will eventually shake out to be when the market settles down? My guess is you take the price it was selling for 10 years ago, then compound it 3% annually. That we are so far removed from that price right now in most cases tells you how much of a ride we're in for.

If you want to make money long-term, stocks have proven themselves for a century. And they are far easier to diversify yourself with. You can own $10k in shares in one stock, $5k in another, $15k in a third, etc.

When you own a single piece of real estate as an investment, all sorts of crappy things can happen. The local economy can tank, natural disaster, bad tenants, bad roof, bad foundation, bad anything. Any one of those setbacks can eat up years of earnings on your real estate investment. Most people can afford a disaster on one or two stocks. If disaster strikes in a real estate investment, you can be seriously fucked for years to come.

That's why so many people are going to get screwed in this downturn. The guy who has one or two rental properties and no other investments could lose hundreds of thousands of bucks.

If I sound smug, it's because I could've been that guy. I unloaded my one rental property in 2005 for $200k. The buyer did a $120k remodel on it. It's been for sale vacant for the last year at $280k. You don't have to be a math genius to see that somebody got fucked.

Buy the house you like and can afford right now. If you get tempted to upgrade it so much that it out prices everything in your neighborhood, either move, or upgrade it because it will make you happy.

 

[BoBoBREWSKI]

TRUE.

Especially if you time it right.

 

[Petey]

It's an investment (anything you spend that much money on is an investment), but it's historically been a really lousy investment. Only twice in the past 100 years has there been a time when it earned much better than the rate of inflation, which makes sense. There's only so much money that people can spend on real estate, so it can't really rise much faster in price than, say, milk or butter or a car.

The two exception were right after WWII (lots of soldiers coming back and looking to start new lives) and the last 7 or 10 years (which is looking like a monumental bubble).

Wondering what the price on a given home will eventually shake out to be when the market settles down? My guess is you take the price it was selling for 10 years ago, then compound it 3% annually. That we are so far removed from that price right now in most cases tells you how much of a ride we're in for.

If you want to make money long-term, stocks have proven themselves for a century. And they are far easier to diversify yourself with. You can own $10k in shares in one stock, $5k in another, $15k in a third, etc.

When you own a single piece of real estate as an investment, all sorts of crappy things can happen. The local economy can tank, natural disaster, bad tenants, bad roof, bad foundation, bad anything. Any one of those setbacks can eat up years of earnings on your real estate investment. Most people can afford a disaster on one or two stocks. If disaster strikes in a real estate investment, you can be seriously fucked for years to come.

That's why so many people are going to get screwed in this downturn. The guy who has one or two rental properties and no other investments could lose hundreds of thousands of bucks.

If I sound smug, it's because I could've been that guy. I unloaded my one rental property in 2005 for $200k. The buyer did a $120k remodel on it. It's been for sale vacant for the last year at $280k. You don't have to be a math genius to see that somebody got fucked.

Buy the house you like and can afford right now. If you get tempted to upgrade it so much that it out prices everything in your neighborhood, either move, or upgrade it because it will make you happy.

You're looking at it in the way where you have to outright pay for the property.

When you are paying the down payment, then monthly payments, if you are able to cover it with the monthly income generated from the lot, you are making more on your investment than the rate of inflation.

Edit: Not sure how sound an investment the guy made who bought the lot from you. Value of the home was seems low for the amount of his improvements. That was not a sound buy, but others I still think are.

-Petey

 

[mook]

Oh yeah--one more advantage of stocks over real estate is liquidity. If a certain sector of stocks looks bad in your opinion, make a call or go to a website and you are done being hurt the same day.

If real estate goes into the tank quickly, you are probably 3-6 months removed from unloading it. First you have to convince yourself not to ride it out (because riding it out is simpler). Then you have to evict tenants and/or spruce up the property. Then you have to market it. Once you find a buyer, they often have to get financing. Then you have to close, and the whole deal could go south for any number of reasons and you go back to finding a new buyer.

Another advantage--stocks don't call you at 3 am with a burst water heater.

Oh yeah, did I mention stocks average 8-10% historical return over real estate's 3-4%?

It's amazing this whole bubble lasted as long as it did.

 

[Denny Crane]

REITs are a way to invest in real estate that are liquid, and they've certainly returned better than 3-4%

 

[mook]

You're looking at it in the way where you have to outright pay for the property.

When you are paying the down payment, then monthly payments, if you are able to cover it with the monthly income generated from the lot, you are making more on your investment than the rate of inflation.

-Petey

Except you have to cover taxes. And insurance. And at least 1-2 months of the year the property is vacant. And your time in finding another tenant. And repairs when the tenant decides to fix his motorcycle on the carpet you installed six months ago. (Happened to me.)

When you factor all that crap in, suddenly that rent payment doesn't look so great.

I've been a landlord, and it's certainly a viable business. I made a lot of dough at it during the bubble. But man do you have to be careful.

Right now I make $1000/month in mortgage payments on my own $160k house (cheap!)

My brother is RENTING a $300,000 house for $1200/month. It's absolutely insane. The landlord for that house is probably losing $1500 ever time he collects a rent check. I pity him when it's vacant!

Bottom line: If you have a little cash and want to invest in something long term (and don't want that investment to swallow a chunk of your life) go with stocks.

If you have a nicely diversified stock portfolio and want to move into real estate, or you just like the idea of being a rental property owner as a part-to-full-time job, go for it.

 

[mook]

REITs are a way to invest in real estate that are liquid, and they've certainly returned better than 3-4%

Were they returning that between, say, 1955 to 1998? (I honestly don't know.) I doubt it, but if they did it's probably because they were basically like mutual funds: carefully managed businesses designed to maximize investment in certain sectors of real estate that had demonstrated long-term growth.

That's not really what I'm talking about. I'm discussing the thousands of mom and pops like me who dabbled in owning a rental or two, or experimented with flipping houses. It looked like a great idea during this bubble, but the party is over. It's just not a smart place to put your small nest egg.

 

[Petey]

Except you have to cover taxes. And insurance. And at least 1-2 months of the year the property is vacant. And your time in finding another tenant. And repairs when the tenant decides to fix his motorcycle on the carpet you installed six months ago. (Happened to me.)

When you factor all that crap in, suddenly that rent payment doesn't look so great.

I've been a landlord, and it's certainly a viable business. I made a lot of dough at it during the bubble. But man do you have to be careful.

Right now I make $1000/month in mortgage payments on my own $160k house (cheap!)

My brother is RENTING a $300,000 house for $1200/month. It's absolutely insane. The landlord for that house is probably losing $1500 ever time he collects a rent check. I pity him when it's vacant!

Bottom line: If you have a little cash and want to invest in something long term (and don't want that investment to swallow a chunk of your life) go with stocks.

If you have a nicely diversified stock portfolio and want to move into real estate, or you just like the idea of being a rental property owner as a part-to-full-time job, go for it.

I'd bet with real estate there is a horror story to every success, much like in the stock market. You've been burned 1 way, I've been burned the other.

Look at how many people were burned today.

It's all about making wise purchases.

I do agree owning property is less liquid of an investment than other assets, but they have their strengths too. As you mentioned there is taxes, that and other costs are tax deductible.

-Petey

 

[The_Lillard_King]

Property is certainly a very sound investment, with a much higher percentage of return that 5%, if a proper plan is executed.

In many cases people put the min down, and try to use the land to generate monthly payments.

So lets say you want to buy a 500,000 usd building, you put 100,000 usd down (20%). After first year your investment is worth 525,000 based on your figure above.

So from your example above someone would need to make a 25% return on 100,000 to match that figure.

-Petey

I was thinking more of a personal residence than investment property.

As far as those numbers above, it's got to be more complicated than that. There is yearly property tax, property insurance, interest rate on money borrowed, maintance, managemetn company fees and the 6% comminsion costs invloved when you finally sell the house.

So no way should someone think they will be making 25% profit/yr on real estate.

I''ve always said I'm not a finance guy, but a strategy I've heard when thinking of buying that beach house is instead put the down into a money market, take what you make off that each year and use it to rent a place iat the beach for two weeks a year. Less headaches and risks invovled. Maybe you lose out in the housing boom, but you also don't have to lose sleep over the housing bubble burst.

 

[mook]

Here's a fantastic article from CNN Money that summarizes the major points.
http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html
It's conclusion:

Stocks win the bout four rounds to three, with one round a draw. But the fight is in truth considerably more lopsided. Stocks roll up large margins of victory in performance, costs, diversification and effort you need to expend as an investor.
Real estate's only big win is in leverage. Using that leverage to buy a home you can afford makes sense. You're building equity and collecting other benefits as well. (And no landlord can stop you from owning a big, hairy dog or throwing a party for 200 of your noisiest friends.)
But jumping into the real estate ring thinking you'll use others' money to score an investing knockout is plenty risky. And the big prize, as you may have noticed if you've tried to flip a condo lately, is more elusive than it might have seemed.

The shocking thing about that article is they came to that conclusion in 2006, when the bubble was just speculative.

 

[blazerboy30]

A house is absolutely an investment.

The whole "real estate appreciates at the rate of inflation" argument is actually an argument FOR buying the house. If the owner is properly leveraged, then that 3-4% appreciation can turn out to be a huge percentage return.

Now, people bring up upkeep, taxes, etc.

Well, if it is an investment property, you get to write-off all of those expenses, PLUS you get to depreciate the structure itself. Those are great write-offs.

If you know what you are doing, you can purchase a rental property that is monthly cash neutral, including taxes, loan payments, insurance, etc. If you are monthly cash flow neutral, and leveraged correctly, that 3% per year becomes 15% per year. I would like to see somebody do that consistently in the market. Not to mention you still get to write-off the taxes paid, and depreciate the structure.

Also, it can be a great investment as a primary residence. The tax code is setup such that you can make a huge profit on your home TAX FREE (up to 500k as a couple).

There are other games you can play, like using an investment home, 1031 exchanging into a nicer home, then moving into that home to later take advantage of the 500k tax free exception. Now you have used houses as a way to make a huge profit tax free.

So, as you can tell, I have always had a strong bias in favor of buying houses as investments.

 

[DaRizzle]

^Depreciation and 1031 exchanges only apply to investment property, not personal residence

 

[THE HCP]

Best thing I've ever done is buy my house. Also, I heard if you put a stripper pole in the basement that you can write it off? True?

 

[DaRizzle]

yes and it depreciates depending on how much body juices are on it

Drag your fingernail down it. If you get a residue piling underneath your fingernail withing 6 inches then you can use it for depreciation

 

[blazerboy30]

^Depreciation and 1031 exchanges only apply to investment property, not personal residence

I know.

What I'm saying you can do is:

You can purchase an investment property and let it appreciate as long as you like.
Then, you can 1031 exchange it into something nicer, that you might want to live in and make your primary residence.
However, it must remain as an investment property for a minimum amount of time, since the 1031 exchange stipulates the two properties being "like properties".
After this minimum amount of time, you can move in to it as a primary residence.
Then, years later, you can sell this primary residence, and not pay any tax on $500k of profit ($250k for an individual).

That is a pretty amazing investment to not pay any tax on. Show me another investment that is absolutely tax free for $500k of profit.