29 January 2008

Buying a home as an investment

  • Jan 29, 2008

Buying a home as an investment

It’s supposed to be the American Dream.
Instead of throwing away money on rent every month, you can buy your own home, giving you not only a place to live rent free, but a sound financial investment at the same time.

One small problem: the number’s don’t add up.
(Check my numbers: http://www.bankrate.com/brm/mortgage-calculator http://www.dinkytown.net/java/CompoundSavings.html http://www.hsfcuonline.org/cw2.1/calcs/Appreciation/calc_appreciation.asp )

First and foremost, there is the idea that a home is an investment due to appreciation.
The logical flaw in that idea is simple, and doesn’t depend on appreciation or rental rates.

Say you buy a house at a certain price, and the value goes up 500%. What can you do with that "value"?

If you want to live in your house, the best you can do with it is use it as collateral for a loan.
Great... now you can go much deeper in debt all at once than you ever could before.

If you sell the house, now you need to live somewhere else.
If your house just went up 500%, that means every house in your neighborhood just went up 500%.
What ever you made in profit by selling, it will cost you just as much to buy something else of equal quality.
Minus what you lose to agents, banks, and taxes for the transaction.

So in order to ever make use of appreciation, you must either move to a much worse neighborhood, move to a much smaller home, or move to a less desirable location.
So: IF you have kids who will be moving out of the home in 10 years, or you plan to retire somewhere cheaper like Arizona or Florida, only then might a house which you live in be considered an investment.
(Buying a house to rent out to others is another story, since you can sell it anytime)

If you want to stay in your home, you can never cash out, and any appreciation is useless.

But at least you are saving on rent... right?

23 January 2008

First version mysteriously disappeared!

  • Jan 23, 2008

First version mysteriously disappeared!

I have been failing to fulfill my responsibility to provide my non-nonsensical thoughts to my 4 or so readers and the 10 anonymous people who for some reason refuse to let me know who they are.
This is primarily because I haven't had time (from work, spending time with my wife, and video games).
When I have posted, its been the sucky unoriginal kind where I just summarize a news story or post a link I found interesting.
Unfortunately, this is going to be another of those.

On the plus side, I have 5 original ideas lined up, which I am sure I will get to relatively soon.  The subjects are written down so I won't forget, and the content has been enhanced and refined by countless raving conversations with people in the real world.

In the meantime...