Is the house you live in an asset?

[GGT]

I'm not quite certain what you mean here. Why exactly would you want to do that? It smacks a bit of investing with borrowed money, which is the most stupid thing you can do because it's based on the assumption that you can do significantly better than the market in a sustainable way.

The question is, did Lolli and I do wise by sinking a lot of our capital in bricks or didn't we? Wiggin has sort of summed up my 'old' certainties. I however have started to think more and more on what return I actually get on this place for the money I put in. And that includes interest lost on a lot of money.

I am going to say something here that may be inflammatory, but here goes.

If people are talking hypothetical money or other peoples' funds, then get the fuck out of this thread. If you are still living under your parents' wing, or in their basement, or in some other sort of subsidized la la land, then shut the fuck up.



Hazir, you and Lolli did what was best for you at the time. You have different needs and concerns, and live in different countries. It doesn't strike me that either of you took the nilly willy path, but both looked at all the variables and proceeded with care.

It's crazy to get a post like that from someone like Fuzzy, a very smart and educated guy, coming in to make a random comment like that.

wiggin also exhibits wisdom. So did Dread when he was scouting around, and trying to make good choices. We've seen this countless times (from the Other Place); Rand and Timbuk and others, discussing their prospects before buying property, taking on debt, signing that bottom line.

Fuzzy, unless you've got something to say about investing your own money, buying your own home, using your own income, then respectfully bow out of the conversation. Whatever you have to say is nothing better than asking an economist or financial planner, and even they don't have all the answers. They are, indeed, often wrong.

[earthJoker]

There are straightforward calculations to determine whether it is worth it to rent or buy in a given area. Assuming one chooses a neighborhood/city on some other basis (work, school system, whatever), it will generally be pretty straightforward to compare the two.

Yep, between different countries it's taxes are one major factor. For excample in Germany it's cheaper if you rent a house/appartement, while in Switzerland you would rather buy one.

[RandBlade]

Rent money is dead money.

A mortgage may initially cost more than renting, but before too long the interest only part of the mortgage (not capital repayments) is less than the rent and eventually like Lolli you don't need to rent at all. I'm looking to buy a house, just a case of finding the right one for now right now, but I'd view a house as both a home and an asset - and unlike most other assets, it is a liability too!

[LittleFuzzy]

Can you leverage that equity as easily as you can a property? I'm not talking about a higher lifestyle here, but capital investment.

I'm not quite certain what you mean here. Why exactly would you want to do that? It smacks a bit of investing with borrowed money, which is the most stupid thing you can do because it's based on the assumption that you can do significantly better than the market in a sustainable way.

Just about all entrepreneurship starts with borrowed money somehow. Borrowing on property is just about the most accessible way to do so.

[RandBlade]

Borrowed money but a strong deposit too. Otherwise its a recipe for disaster.

[Supermarioman]

I would consider the house an asset, but a long term one.
I'm not going to move into a house just to resell it.

[Timbuk2]

I'm not going to move into a house just to resell it.

Why not?

If you're sensible and buy/sell at the right time it's a great way to make a bundle.

Moreso if you're prepared to do a little work on updating the property while you're there.

[Hazir]

Just about all entrepreneurship starts with borrowed money somehow. Borrowing on property is just about the most accessible way to do so.

Eh, and what if the money that I have tied up in bricks now would be in a bank-account? The reason why I am doubting these 'truths' about home-ownership isn't some theoretical situation. The reason is that those 'truths' have been standing topsy turvy for over a year now; things that made perfect sense for a long time (pay of your debts) have become an act of utter stupidity.

It boggles my mind that I could pull money out of my home, increase my debts and still end up better off. The only reason why I don't do it is because it simply goes against everything I've believed in for the last 25 years. That's why I can understand Lolli and Randblade when they say what they say, I still believe that in a way, and then I see the numbers on my monthly statements that tell me it's not true at all.

And the scary thing about this is that even though this may sound anecdotal; it is not. Both the interest on my mortgage loan and the interest on my savings go up and down with the capital markets.

[Bitter Jeweler]

My house is a burden.
Your poll is flawed.

[LittleFuzzy]

Eh, and what if the money that I have tied up in bricks now would be in a bank-account?

Would it be in a bank account? Or would you tie it up in some other way? I'm certainly not trying to suggest that home-owning makes sense in all situations, I'm merely alleging that home-ownership is particularly easy to leverage. Now to an extent that's probably because the systems involved have just come to expect it because home-ownership was being driven for other reasons anyway.

[Dissident]

If I rented I'd be throwing away $1000 - $1500 a month that I have no hope of ever getting back.

What about the money you 'lock up' into your house? You will always need a house, will you not? When would you get the money that you 'lock up' into your house back?

I think that approach will only be good when a mortgage rate is below renting rate. Only then will it make sense to buy a house. Otherwise it may be beneficial to simply rent. Sometimes you can get a much, much bigger house than you could get with the same money.

[Hazir]

Eh, and what if the money that I have tied up in bricks now would be in a bank-account?

Would it be in a bank account? Or would you tie it up in some other way? I'm certainly not trying to suggest that home-owning makes sense in all situations, I'm merely alleging that home-ownership is particularly easy to leverage. Now to an extent that's probably because the systems involved have just come to expect it because home-ownership was being driven for other reasons anyway.

I would think that money tied up in real estate (that you live in) is the least liquid of all assets and thus hardest to draw upon.

By the way Dissident, that was what I meant with 'lost interest', it is the interest you could have had if you could use the money locked up in your home inanother way.

[GGT]

I would think that money tied up in real estate (that you live in) is the least liquid of all assets and thus hardest to draw upon.

It was even more illiquid until they created HELOC and home equity loans. Then it was easy to draw on to get cash to...take a vacation or buy a car. They twisted up the home improvement loan, easy money made stupid.

Making a business loan with a mortgaged home as collateral probably made sense during a time when folks would do anything to keep their home, and it was taken for granted they wouldn't default or walk away. Or if they did, the bank could repo, sell, and profit.

Now there are loans made on top of loans, and the deck of cards has fallen. Everyone from the bankers to the buyers saw leveraged property as business as usual. Debt as asset. MBSs sucked in third party investors, businesses were built on borrowed money that's now defaulted, even PMI is underfunded (they never thought it would come to this).

[LittleFuzzy]

I would think that money tied up in real estate (that you live in) is the least liquid of all assets and thus hardest to draw upon.

By the way Dissident, that was what I meant with 'lost interest', it is the interest you could have had if you could use the money locked up in your home inanother way.

It's incredibly difficult to draw on directly, yes. Definitely illiiquid. That's why I said leverage instead. Cash is even easier, just putting the money in an accessible bank account, but is that what you'd actually do with it all? Seeing as that usually also doesn't provide a particularly high return?

[']['ear]

The inflation-adjusted appreciation of homes is something like 1.5-2% over time, IIRC. The bubble, which started much earlier on the coasts, caused people to treat it like something extra special, and take inappropriate risks. A house is more like a bond, and one should not accept much risk because of that low payoff.

[Hazir]

It's incredibly difficult to draw on directly, yes. Definitely illiiquid. That's why I said leverage instead. Cash is even easier, just putting the money in an accessible bank account, but is that what you'd actually do with it all? Seeing as that usually also doesn't provide a particularly high return?

As I pointed out, thatt still would give a better result.

[LittleFuzzy]

As I pointed out, thatt still would give a better result.

But if it's not what you're going to do even if it would provide a better result, then it shouldn't be used as a point of comparison.

[Dreadnaught]

['ear]The inflation-adjusted appreciation of homes is something like 1.5-2% over time, IIRC. The bubble, which started much earlier on the coasts, caused people to treat it like something extra special, and take inappropriate risks. A house is more like a bond, and one should not accept much risk because of that low payoff.

I tried to find a source for that, but didn't find much in either direction. And any data I do find is distorted by the housing bubble.

But frankly, 1.5-2% over inflation is no mean feat at all. Most savings accounts and many bonds don't grow much beyond inflation (if at all).

I also suspect that number is the average of very disparate numbers. EG I just calculated that my mom's apartment (where I grew up) has appreciated 200%+ since she bought it. But of course she bought in a neighborhood that since then has become increasingly desirable.

Yet I imagine there are whole towns in America that have become correspondingly less desirable and the housing stock has declined accordingly. EG the median price of a home in metro Detroit is now $7500.

[GGT]

It's almost impossible to detangle all the cash wrapped up in a mortgaged house. If you have to escrow property taxes, that's a chunk of change that can't accrue interest anywhere else (and it's not the same as first and last month's rent in apt deposits).

[Dreadnaught]

I'm not familiar with escrowing property taxes...how does that work? Isn't that just a transaction thing?

Isn't the cash in homes just the (sale amount/appraised value) - (mortgage amount) = theoretical cash value?

[Supermarioman]

Why not?

If you're sensible and buy/sell at the right time it's a great way to make a bundle.

Moreso if you're prepared to do a little work on updating the property while you're there.

Mainly because it isn't ethical.
It drives up home prices, and it screwed up the economy here.

[littlelolligagged]

Mainly because it isn't ethical.
It drives up home prices, and it screwed up the economy here.

What's not ethical about selling your home for a profit?

:lol: Marioboy said I have no ethics. I think I feel awesome now.

[GGT]

I'm not familiar with escrowing property taxes...how does that work? Isn't that just a transaction thing?

Isn't the cash in homes just the (sale amount/appraised value) - (mortgage amount) = theoretical cash value?

Usually, if there's less than 20% cash down, buyer has to escrow municipal and property taxes for the year, a year in advance. They also like to pad escrow a bit since taxes are known to go up. The mortgage company then pays the tax collector.

Might depend on the company, but I think they add it to each monthly payment, and break it down by principle/interest/escrow. Pa is required to return a certain percentage of overage to the homeowner, if the value of the home depreciates, but it's so complicated no one really knows if that ever happens.

And since taxes are tied to assessed value and mils formulas, and assessments aren't done yearly.....

[Dreadnaught]

I haven't heard of that...but it's an odd situation that the buyer can't pay for more than 20% down, but can put a year of taxes into an escrow account...right?

[GGT]

I haven't heard of that...but it's an odd situation that the buyer can't pay for more than 20% down, but can put a year of taxes into an escrow account...right?

Buyer's can escrow taxes if they want, even if they don't have to (but why would they?)

It's a contractual thing, maybe state-dependent? My township has legal rights as first lien holder. They can seize my house for non-payment of taxes.

Another part of this 'walk away from your mortgage' that is confusing. Are they also not paying the taxes that were part of their contract in the fine print? Are banks fighting municipalities for who gets the deed and sells to recoup losses?

[Supermarioman]

What's not ethical about selling your home for a profit?

:lol: Marioboy said I have no ethics. I think I feel awesome now.

I never said that.

Read my first post. I said I wouldn't buy a house just to sell it, like a stock or other asset.
http://en.wikipedia.org/wiki/Real_estate_bubble

[Hazir]

But if it's not what you're going to do even if it would provide a better result, then it shouldn't be used as a point of comparison.

Really? Or is it the point where we should start to become more rational about the total of our assets and stop acting as if a home that you own is just another one that also needs to be justifiable.

[GGT]

Hazir, how are your taxes set up?

I'm paying quite a bit in interest on my loan, to get a paltry tax deduction. I'd prefer to pay down the principle faster, but it makes more sense to keep that cash making interest/dividends. Just in case.

Some have interest-only loans, and they don't have much equity at all....they just use the tax deduction.

[Hazir]

Hazir, how are your taxes set up?

I'm paying quite a bit in interest on my loan, to get a paltry tax deduction. I'd prefer to pay down the principle faster, but it makes more sense to keep that cash making interest/dividends. Just in case.

Some have interest-only loans, and they don't have much equity at all....they just use the tax deduction.

The interest on loans for your first home (mortgage/repairs/improvements) are deductable from the tax on income. I get back about 37 cents of every euro I pay in interest on those. A lot of people see this as an incentive to borrow more, I always saw it as just another subsidy to the banks so I persisted in paying down my loan.

For me tax deductability means that I am effective paying around 1.2% of interest on my loan (compared to getting 2.4% on my savings). The charm of this is that the loan cancels out the savings for the application of capital gains tax.

Real estate taxes for home-owners are relatively low at 0.05315 % of the market value of your real estate.

[GGT]

Real estate taxes for home-owners are relatively low at 0.05315 % of the market value of your real estate.

Your rate IS low. My combined municipal + school taxes = 2.5% of assessed value. It used to be assessed value was much less than appraised (market) value, but now it's 100%, after county-wide reassessment was done a few years ago, during the bubble.

As property values went up, the county wanted more revenue. They especially wanted to capture the gains made in houses owned for a long time, (assessments were only made when property changed hands) which caught elderly by the short hairs.