Why is buying a house considered a good investment?

[Singuy]

Appreciation aside..you have to look at a few factors to see if it's a worthy investment and it gets pretty complicated.

Lets say we are talking about a 250k house@ 2500 squareft.

Lets assume you have either 0 Down or Pay in Cash.

If 0 Down, Is your house appreciating more than interest rate (3.8%) + property tax(usually 1.5%)/year? Inflation is NOT a factor because you have no money to be inflated. The number here is 13.25k/year (add another 3k due to PMI). Subtract 2k thanks to tax return benefits. (Total is 14.25k)

If you have 250k in hand, then it's a different problem. You can now potentially lose 2.5% of your money to inflation if it sits, you can invest it to combat inflation, or lets say you buy the house as your primary. So now you have to ask if your house is appreciating more than inflation (2.5%) + property tax = 10k/year.

So the question is, does the house need to appreciated in order for it to be a sound investment?

Now lets add the renting factor + squareft factor.
Renting a 2 bedroom house at 1100 sqft in these areas will be about 1200/month. (14.4k/year)
If you go 4 bedrooms and 2500 squareft, then rent is around 1900. (22.8k/year)

So if we are comparing apples to apples, it will cost you 14.25k/year (this 14.25k is money not going toward equilty, it is money you are throwing away) for a house@ 2500 sqft, and 22.8k/year for a rented house @ 2500 sqft.

At the end, you wasted $8550 less if you went with the house @0 down..of course this is assumes nothing breaks in the house and your house didn't appreciate.

This means your money appreciated by 3.4%/year compare to renting. Your money also appreciated by 5.12% if you paid cash compared to renting. This DOESN't EVEN ACCOUNT FOR TRUE APPRECIATION OF THE HOUSE!

If someone can check my math and my through process...

From where I am standing, a house is a better investment for shelter compared to no house.

[LivingAlmostLarge]

Singuy how does it work that a house that is 250k is 2500 sq ft and rents only for $1900? A proper comparison would be how much is it to buy the 1100 sq ft house. But why is it $22k/year to rent and only $14k to buy even with the $0? Something doesn't sound right. Post an ad of a $250k house and a craiglist ad of a house renting for $1900 that is around same size and quality and same location.

So why is buying a house not a good investment? You can easily lose money with repairs/upgrades or just maintenance. Three friends who are selling are losing money on their homes and they have the gamut of what they bought for.

1 bought for $1.4M in 2004. Selling now for $1.65M but is in it for $1.775M she thinks with the renovations she did. Lucky relocation company is paying closing costs.

2nd friend bought for $275k 2 bd condo in 2009. Turned it into a 3 bd townhouse and is selling for $316k. Losing heaps of money, good thing parents gave them tons. But cost was $14k to finish basement, $20k to redo bath that was leaking, and $50k to add bedroom because they had to redo their furnace which couldn't support new sq ft. So what do you think they are losing?

3rd friend bought in 2008 $475k 2 bd condo and selling for $540k. But has sunk around $25-30k easily in renovations and upgrade. After selling costs will likely barely break even her husband has calculated.

Something people don't want to acknowledge in home calculations is what you've spent in home maintenance and renovations. Do you make it back? Can you make it back? There are so many factors.

Do I think it's a good investment? No, but it does give people security and a nice place to live and enjoy and you can't put a dollar value on that.

[Singuy]

Singuy how does it work that a house that is 250k is 2500 sq ft and rents only for $1900? A proper comparison would be how much is it to buy the 1100 sq ft house. But why is it $22k/year to rent and only $14k to buy even with the $0? Something doesn't sound right. Post an ad of a $250k house and a craiglist ad of a house renting for $1900 that is around same size and quality and same location.
.

It "cost" more than 14k to buy a house per year if you were to calculate in the total mortgage, but when it comes to "wasted money"..it's around 14k(first of all it's 16.5k after PMI, property tax, and INTEREST ONLY, but then you get tax incentives so it's a true 14k afterwards). Rent at 22k/year is totally wasted, you don't get any tax incentives back and 0 equity so it's equivilent to the cost of interests+PMI+property tax.

Also are you saying the rent of 1900 is too cheap for a 250k house? This house has a zestimate of only 200k but is charging 1800/month. I also can find houses worth more but asking for less rent and vice versa.

http://tampa.craigslist.org/hil/apa/5044564461.html

[disneysteve]

property tax(usually 1.5%)/year

1.5% of what?

Our property tax sure isn't 1.5% of our home's value. That would be really sweet.

[Singuy]

1.5% of what?

Our property tax sure isn't 1.5% of our home's value. That would be really sweet.

1.5% of the assested value but can go as high as 3% in some states. My property tax is at 1.5%, also my state has homestead exemption.

My parent's house in Orlando Fl is "valued" at $298,774 by the county and paid a property tax of $4,863.05 in 2014 which is 1.6%. You can go onto the public record and look at every house (orange county property appraiser) for similiar numbers.

I know some states are a lot higher, but they also charges way more for rent as well.

[disneysteve]

1.5% of the assested value but can go as high as 3% in some states.

I just checked. For 2014, our property tax was 3.82% of assessed value and about 3.12% of actual value.

[Singuy]

I just checked. For 2014, our property tax was 3.82% of assessed value and about 3.12% of actual value.

It's amazing how much more people pay in a non-homestead exempted state. Over here, our assessed value is ALWAYS lower(by a significant margin) than the actual value.

[disneysteve]

It's amazing how much more people pay in a non-homestead exempted state. Over here, our assessed value is ALWAYS lower(by a significant margin) than the actual value.

It really makes no difference what the assessed value is. All that really matters is how much the taxes are.

Our home was reassessed about 2 years ago to $184,000. Prior to that, it hadn't been reassessed since we bought it in 1994 and the number all that time was $121,000 if I remember correctly. The reassessment did nothing to change our property taxes. I mean they went up a bit but that happens every year. It had nothing to do with the assessed value changing. Honestly, I'm not really sure what purpose the assessed value serves, if any.

[LivingAlmostLarge]

Singuy the house you posted is according to Zillow should be around $200k. The rental estimate is $1575 which I think seems more in line with other rentals in the area. http://www.zillow.com/homes/1711-woo...brandon-fl_rb/ Multiple homes on the same street closed for $250k that are 5 bd, 3/4 baths 3500+ sq ft for $238k, $240k. So $200k is generous for that house.

At $200k the mortgage at 3.92% is $946/month, $292/month is principal. Plus $4100/year property taxes = $350/month. $1300/month not including PMI or insurance which is expensive in florida. So $1k month in interest and property taxes with a 15% tax discount we are looking at $850/month versus $1575. But not including insurance or PMI which could be $175/month PMI and $200/month home insurance which flordia pays twice what others pay in insurance. http://www.tampabay.com/news/busines...verage/2214581

So we are looking at $175+$200+$850 = $1225/month. Of course there is maintenance and I think personally 1% is low for florida because of storms but at $200/month conservatively you are looking at $1425/month for the "real" wasted cost of buying.

I'm not saying it's not worth it, it probably is in the long term. But we haven't backed out yet the closing costs on the purchase and the closing costs on the sale which should run 6-7% on the sale and conservatively 1-2% on the purchase.

I just don't think it's a clear cut answer all the time that buying is a good investment. It could be. But if you don't live in the house long enough, ie say only 5 years, and there is NO appreciation, then all your "home equity paydown" will go to paying the relator/closing costs.

[JoeP]

I don't look at my house as an investment. Any money we put into it as far as maintenance goes is just to keep it safe and in good condition, and we consider that an operating expense. Any money we put into improvements is to gain a little more enjoyment and comfort above the baseline, and to make it somewhat more appealing when the time comes to sell it.

We just might catch a break when we go to sell, where there is high demand in our area for a house like ours, but we're not counting on it.

[Singuy]

Singuy the house you posted is according to Zillow should be around $200k. The rental estimate is $1575 which I think seems more in line with other rentals in the area. http://www.zillow.com/homes/1711-woo...brandon-fl_rb/ Multiple homes on the same street closed for $250k that are 5 bd, 3/4 baths 3500+ sq ft for $238k, $240k. So $200k is generous for that house.

At $200k the mortgage at 3.92% is $946/month, $292/month is principal. Plus $4100/year property taxes = $350/month. $1300/month not including PMI or insurance which is expensive in florida. So $1k month in interest and property taxes with a 15% tax discount we are looking at $850/month versus $1575. But not including insurance or PMI which could be $175/month PMI and $200/month home insurance which flordia pays twice what others pay in insurance. http://www.tampabay.com/news/busines...verage/2214581

So we are looking at $175+$200+$850 = $1225/month. Of course there is maintenance and I think personally 1% is low for florida because of storms but at $200/month conservatively you are looking at $1425/month for the "real" wasted cost of buying.

I'm not saying it's not worth it, it probably is in the long term. But we haven't backed out yet the closing costs on the purchase and the closing costs on the sale which should run 6-7% on the sale and conservatively 1-2% on the purchase.

I just don't think it's a clear cut answer all the time that buying is a good investment. It could be. But if you don't live in the house long enough, ie say only 5 years, and there is NO appreciation, then all your "home equity paydown" will go to paying the relator/closing costs.

The prices you saw in which some of the 3k+ squareft houses were sold in 2013(some were short sales too) so the climate in 2015 is much different. Also your property tax calculation is really high for FL(but may be what others pay in other states). From my research, the owner paid $2,058 in 2013 for property tax. Also being a 200k house, home insurance shouldn't be more than 800(my parent's house in Orlando FL is worth 380k and only pays 1100 in home insurance).

As for closing cost, you can always get the seller to cover most of it but pay the seller asking price of the house.

It only makes sense that you are saving "wasted money" if you buy vs rent. The renter usually charges their rent to cover their mortgage AND make a few on top..so you are basically paying for all their expenses and principle.

Best way to save "wasted money" is to save till you have 20% down, or just flat out buy with cash.

[LivingAlmostLarge]

Then if the value of the house went up it only supports the amount of interest being paid as more and making renting more equitable.

Second, Orlando perhaps I'm wrong is not next to the water so the rates of insurance are much different. I believe its more likely the paper stating that the average home insurance in the city is more accurate basis of insurance. After all the hurricanes there were many articles about how Florida has the highest rates of home insurance and many companies stopped insuring in florida. I know that friends who own property in Tampa would agree.

Third, closing costs are being borrowed if you get the seller to pay them. Further it would logically conclude that if you are getting away "scott" free when buying then when you get to sell the same home, expect to get hit with "paying for closing costs" for the buyers. FWIW neither time i've sold in two different markets was I asked to pay for closing costs. Also no one I know actually had closing costs rolled in. Probably because depending on the market, it makes an offer non-competitive.

Either way you cut it, selling takes at least 5% of appreciation away of your "money".

And the maintenance issue. I don't think most would argue that having to "pay" 1% of the value of the home a year is not unexpected. And landlords usually pay more because of damages done by tenants and it's hard to go after "wear and tear". Hence why many landlords don't raise rents or chase away good tenants.

Also um, many people on this board, not investors but people in bad financial situations are often times "carrying" a property by supplementing the rent to cover the PITI. Most are not making a profit that makes it worth keeping a rental property.

In fact I know one Laura from Deacon's Wife wrote recently "rental property breaking even." I would ask her has it always broken even or were they at one point shelling out even $50 or $100/month? Who knows? But I would bet if she writes breaking even in the past depending on how long they've had it, it might not have been a money maker ever.

I am not against owning a house I just don't think it's a good investment necessarily. And I plan on buying again in 1 year. I just don't have any blinders that it's an "investment".

[Singuy]

Then if the value of the house went up it only supports the amount of interest being paid as more and making renting more equitable.

Second, Orlando perhaps I'm wrong is not next to the water so the rates of insurance are much different. I believe its more likely the paper stating that the average home insurance in the city is more accurate basis of insurance. After all the hurricanes there were many articles about how Florida has the highest rates of home insurance and many companies stopped insuring in florida. I know that friends who own property in Tampa would agree.

Third, closing costs are being borrowed if you get the seller to pay them. Further it would logically conclude that if you are getting away "scott" free when buying then when you get to sell the same home, expect to get hit with "paying for closing costs" for the buyers. FWIW neither time i've sold in two different markets was I asked to pay for closing costs. Also no one I know actually had closing costs rolled in. Probably because depending on the market, it makes an offer non-competitive.

Either way you cut it, selling takes at least 5% of appreciation away of your "money".

And the maintenance issue. I don't think most would argue that having to "pay" 1% of the value of the home a year is not unexpected. And landlords usually pay more because of damages done by tenants and it's hard to go after "wear and tear". Hence why many landlords don't raise rents or chase away good tenants.

Also um, many people on this board, not investors but people in bad financial situations are often times "carrying" a property by supplementing the rent to cover the PITI. Most are not making a profit that makes it worth keeping a rental property.

In fact I know one Laura from Deacon's Wife wrote recently "rental property breaking even." I would ask her has it always broken even or were they at one point shelling out even $50 or $100/month? Who knows? But I would bet if she writes breaking even in the past depending on how long they've had it, it might not have been a money maker ever.

I am not against owning a house I just don't think it's a good investment necessarily. And I plan on buying again in 1 year. I just don't have any blinders that it's an "investment".

People who are not making a profit from renting is mostly due to the fact that they can't afford to sell the house(because they bought it at the peak of the market and is underwater). For those who bought short sales/foreclosed or any house in 2012-2013 are pretty much making a profit.

It's hard to make a profit(or even cover your expenses) when you bought a 400k house that's now worth 280k and you have to rent it as a 280k house. Most of the people I know bought 120k houses in 2012/13 and are making a hefty 15% on their return excluding the house's appreciation.

Currently it's a still a buyer's market and house values are still stagnated due to 2007-2008 houses coming out of foreclosure. Once those foreclosures are gone, then we'll see a steady increase in house prices again(unless there's another huge crash coming..or companies like blackstone messing up the housing markets).

And about the closing cost, I was just saying how you can buy a 250k house without paying closing because technically you bought a 250k house at 240k(through negotiation). Everyone will try to buy a house slightly below appraisal.

Whatever the case is, renting in luxury(as in, spending 1600-2200/month for a 2500 squareft house with a pool and outdoor kitchen) is a bad idea and kind of kills the point of renting...which makes buying a house a much better investment. My wife's best friend is paying 2k in rent for a house that's worth 350k and I have been begging her everyday to stop and just save up enough to buy the house.

[LivingAlmostLarge]

We have to agree to disagree. Bottom line is real estate is location dependent. But there are facts that can't be disagreed. You have transactional costs associated with buying and selling.

I see it was not addressed in the last message about how do you sell a house without paying anything? Where is that included? Nor the potential maintenance or issues that may come up during home inspection.
Or in the budget you hypothetically written there is only PITI but no regular maintenance?

Do a poll and most would say at least 1% maintenance annually. Sometimes more and sometimes less. A lot like a car. Sometimes it rains and other years it's minimal. But with any house there are some basics you don't pay as a tenant.

Gutter cleaning, furnance maintenance, termite check, vent cleaning, exterior windows. Those are probably things you mostly pay for. Then there are simply stuff like yard, exterior, interior maintenance.

[Singuy]

We have to agree to disagree. Bottom line is real estate is location dependent. But there are facts that can't be disagreed. You have transactional costs associated with buying and selling.

I see it was not addressed in the last message about how do you sell a house without paying anything? Where is that included? Nor the potential maintenance or issues that may come up during home inspection.
Or in the budget you hypothetically written there is only PITI but no regular maintenance?

Do a poll and most would say at least 1% maintenance annually. Sometimes more and sometimes less. A lot like a car. Sometimes it rains and other years it's minimal. But with any house there are some basics you don't pay as a tenant.

Gutter cleaning, furnance maintenance, termite check, vent cleaning, exterior windows. Those are probably things you mostly pay for. Then there are simply stuff like yard, exterior, interior maintenance.

There's very little transactional cost when buying(if you negociate correct), there are however, massive closing costs when selling.

I'm not saying it's a good idea to buy a house and sit on it, or renting it out as a better investment than other types..but when you use it as your primary shelter as a luxury item..it's definitely a better investment than renting the same luxury item.

Also note, when buying a house, getting one in which your mortgage is 600/month will get you in questionable neighborhood but renting at 600/month can get you somewhere decent. So if you want to go low end, renting is the way to go.