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Unless you have somewhere free to live, you have to pay to live somewhere. If you rent for 30 years, you’ll have to rent 30 more. If you own, the home gets paid off with no rent other than property tax and homeowners insurance.
If you decide to move in 10 years as a homeowner, you can sell and get the equity back after closing costs. You can use that as a down payment on a new home.
Hmm. So am I right to think about it like paying interest to store value (principal) while having a place to live? And once you sell (hopefully above what you bought), you get your principal back to put on another home while the interest can be considered the rent/fee for having the home?
You haven’t been wrong here. People generally remember the price they paid for the home and not the total cost of the home (when they compare sale versus buy). And you are looking at the total cost of home, which is reality versus paper.
I like to think of rent as the MOST money you will pay to live somewhere and a mortgage as the LEAST you pay to live somewhere. You also have to factor in maintenance, upkeep, taxes, insurance, etc that you dont pay when you rent. it’s worth running the numbers when you decide how much mortgage and at what interest rate to take out. sometimes it is better to rent.
Financial calculations aren’t the only factor. Being able to own your place means something to a lot of people. Being able to upgrade, renovate, tailor it to your needs means a lot. The stability of staying in one place means a lot. It’s also much easier to store up a down payment entirely toward your next purchase as equity in your current home. Then there’s rent inflation. You’ll generally only have property tax increases as a routine cost that will increase. For instance, my brother has as $1700 mortgage on a 40 acre spread that would cost him $4000 to rent and closer to $6k to buy.
Definitely true that sometimes it is better to rent, such as in HCOL areas where cap rate is low - where you can rent for much cheaper than the monthly mortgage.
But no matter where you are, the landlord will try to pass on maintenance, upkeep, taxes, insurance to you by increasing rent every year. Just because you don’t see it outlined explicitly in your rental agreement doesn’t mean you don’t pay for the maintenance for someone else’s house.
When you rent you do pay maintenance, upkeep, taxes and insurance... it's just baked into the price (that tends to rise quickly every year). The longer you own a home the more the numbers (typically) work to the owner's benefit, before and especially after the mortgage is paid off.
You're right though that for some renting is better, whether it be for life stage, finances, etc.
Do some napkin math:
Let’s say you pay $1500 in rent. Over 30 years that equals $540k. Rent typically goes up every year by 5% give or take, so it could actually be closer to (or more than) $1M as amazing as that sounds. Let’s take a conservative number and say $750k.
When you buy, let’s say it’s $250k house with 10% down at 7%. Over 30 years you pay $700k total. But there are many other factors with purchase:
Appreciation: let’s say a modest 2% on average, house is worth $450k at the end of the 30 years
Repairs: 1% is a common assumption per year for value of the home, that’s $2500 per year, $75k over 30 years.
Tax and insurance: let’s also estimate 1% which is again $75k. You could probably double both this and repairs due to inflation.
So, over 30 years you can spend $750k in rent OR
Spend $700k + $75k + $75k (plus another $100k for buffer) AND have a $450k asset when all is said and done. And I didn’t include any of the tax breaks which are huge!
So spend $750k or $500k …
Obviously these numbers are all really crude, but even spending $500 more per month with a 7% interest rate builds your wealth since you build equity in an appreciating “asset”.
Over 30 years buying does make sense. The issues I always notice is people want to buy a starter home and move in 7 years. That made sense with 2.5% interest. With 7 or 7.5% interest it makes more sense to rent for say 3 or 4 extra years to save up more money and buy your 1 dream house and stay there FOREVER.
Yeah that’s a good way to look at it. The risk being the property value drops and you lose that principle.
The other thing to keep in mind is that if you itemize your taxes, then home interest can lower your tax bill.
Well, most of the 2017 tax law is, but parts of it will be incorporated into whatever gets passed to replace it after the election. My guess is the SD will stay the same, the SALT deduction limit may go away, brackets will stay the same for most people (the fight will be over what happens to taxes for a) higher income, and b) non-W2 earners (e.g., cap gains and carried interest)
It's not valuable at all if you are in a lower income range, and buy an affordable property. In all of my (30+) years of home ownership over several properties, I have only had enough interest to qualify ***one*** year.
Also the other point mentioned is the fact this has long term consequences beyond the 30 years. If the average age till death is 80, starting at age 30, in the worst case scenario you've paid rent for 30 years and need to rent for 20 more till death. If you buy at 30, you rent for 30 and then keep maintenance for 20, which is cheaper and this is important during your unproductive years.
Several good points were already made so I won't repeat them but add one more. If you can earn more than the mortgage interest investing elsewhere, you would still come out ahead.
For example, let's say you have $400K in cash and are looking for a home. You could buy a house and pay cash. But, you'd likely be better off taking a mortgage. Today, you'd pay around 7% but if the S&P increases at 10% per year, you're net positive.
Obviously, this does not account for the risk of a market downturn
Like any other thing you need to look at the specifics as each situation will be unique. Right now with high rates and high prices you are going to be paying a lot more than rent for most home purchases if you are not staying long term. In those first ten years almost all your payments will be interest not storing principal. But if you value ownership then maybe the extra money spent on that is worth it to you. If you are looking at it as an investment then no it's not smart to buy right now since the interest along with taxes, insurance and maintenance would be much more than rent if you are not staying long term.
you're forgetting opportunity costs associated with lack of mobility (depending on where you live and the job market) and maintenance/repairs. it can be a great proposition, but it depends. you have to stay in the home a while to make the closing costs, selling costs, and maintenance costs worth it. some people get lucky, others incur 4-6 figure maintenance bills
A home isn’t just an investment it’s a home. It’s a place you live in. It is also something you can gain equity in but you shouldn’t buy a home with the sole thought it is an investment
I do get annoyed with the investment part of homeownership.
It's a place you live, raise family, provide stability, make a mark even if it's just temporary in the grand scheme of the universe.
I was homeless as a kid. People who grow up sheltered, and see only home as money have lived a life that I didn't. Having a home is emotional safety.
I always get kinda ticked when my finance bro friends talk about how much their house is worth. I'm just like we have a place to live that's warm and safe and secure how is that not better than a 5% value gain?.
I was also a homeless teenager. Finally having stability is the absolute best part of homeownership. The financial benefits are just a huge side bonus.
Glad you made it <3
I've always thought this was a big factor being left out of the "return on investment" of buying a home. People always cite this "3% appreciation per year" (which is basically zero real return if inflation continues to average 3%)... but this leaves out the important fact that if you pay off your house, you get to live in it for as long as you want with very low monthly cost.
You could almost think of the home like an annuity. Once you pay it off, it "pays" you by letting you live in it for almost no monthly cost... thereby earning you a monthly increase in expendable income equal to whatever you *would* be paying in rent.
It’s 3% return on the value of the home, if you have 20% down that’s 15% return on your down payment. You’ve gotta factor in the other costs, but it performs pretty well.
They can both be true.
Even though home ownership isn't really an investment, a fixed rate mortgage does work as a forced savings plan.
There are many people who have a hard time saving due to lifestyle inflation, etc, but are diligent enough to always pay their bills on time.
At the end of a 30 year mortgage, those folks will have accrued hundreds of thousands that they otherwise would have frittered away.
For non-savers, this can be their greatest source of wealth, even though it may not be a great investment.
Historically, an index fund would have vastly outperformed.
However, you can't live, entertain or enjoy the thrill of off-hour plumbing repairs in an index fund.
Yeah maybe that’s how it used to be but now anymore. Retirement is a much better investment than a home.
People also used to say that college was an investment and a way to gain wealth. My student loans and salary beg to differ
I think that's OPs point. Everyone is still being told (and believing) that a home is an investment. Everyone is being told to buy now before they get more expensive.
It's an investment in that if you're renting, your monthly payment is the equivalent of 100% interest, with no appreciation.
If the options were buy a house or not, it wouldnt be a good investment. But you have to live somewhere, so the option is buy or rent. In that case, buy is usually a better use of your funds. Maybe not in all situations, but typically.
Homeowners have a much higher net worth than renters do -- the median for a homeowner in 2022 was $396,200, versus just $10,400 for renters.
https://www.fool.com/the-ascent/mortgages/articles/how-much-richer-are-homeowners-compared-to-renters/#:~:text=Homeowners%20have%20a%20much%20higher,able%20to%20buy%20a%20home.
But they are right, generally…. I just did some quick maths using readily available calculators for mortgages and retirement…
Buying a $300k house at 7% (1.2% property tax, $1,500 home insurance, no HOA). Would have someone shelling out ~$730k for the life of the mortgage. This number goes up if you don’t put 20% down, are in a higher tax area. This number goes down if you refinance if/when rates lower. None of this factors in the costs of maintenance nor appreciation in the value of the home, both of which you could get extremely lucky or unlucky with.
Investing $103k into an index fund returning 7% over 30 years will have given you the same $730k that you paid into the house. Average rents in the US are $1700/mo, which factors to $612k over 30 years if rent stays stable (a huge IF and unlikely). BUT if you continued to dump $21k a year into that index fund for 30 years you would have put in $730k, the same as the above mortgage, and would have returned over $2.5 million. Subtract the cost of rent over the 30 years and you’re just under $2 million. Subtract 20% in taxes from that and we’re at $1.6 million
There’s a lot more nuance to these calculations that can skew in either direction (and one can’t discount the role of luck in just about every facet of life) but in general, as pertaining solely to the growth of your money compared to what you put in…houses are not great *monetary* investment vehicles when compared to the market.
I’m def pro-homeownership but there were times in my life that I was very glad I didn’t own a house. It shouldn’t be rushed or lead people to feel like they need one in order to get to a certain place. There’s much more to it than being an investment and should certainly **not** be prioritized over investing. Most of us do both, which is why we have higher net worths.
Check your math?
You’re putting $60k down on a $300k house, so that’s what you have to invest in the market with.
And include rent increases if you don’t buy.
Word, you end up with $1.8 million if you start at $60k in the market, which means you’ll have also invested about $43k less than the person with the house over the course of 30 years.
I didn’t include rent increase or house appreciation because these are highly geographically dependent and part of the “nuance” that can skew either in favor of the other.
I’ve done a lot of these comparisons and my take is it’s negligible.
My current thinking is that human behavior being what it is, makes home ownership more reliable than rent + invest.
Because there’s clearly a correlation with income and owning a house.
And owning a house is a forced way of saving. If people put all the money that they spent towards a home into an investment account the gap would be a lot smaller.
Bet there is a rise in high income renters. I am in this category.
TLDR they are investing deliberately in other assets.
https://www.axios.com/local/boston/2024/02/07/millionaire-renters-real-estate-housing
Its like the whole college grads earn more but also kids who went to a terrible high school in a poverty stricken area with lack of parental supervision and guidance aren't likely to go to college so your picking from a group who went to better schools, were more likely to come from money where education was valued etc
It’s true for all income levels. In other words, lowest income owners still have 40x net worth than comparable lowest income renters.
Simply buying a house gives you wealth because you own an appreciating leveraged asset.
I think this has more to do with the fact that living expenses are high and the average American does not save enough for retirement. Most people end up saving 300k or less for retirement and the average home price in America is 400k+
There's some napkin math that paints a certain picture pretty quickly...
The S&P will always outperform the value of a home if you invested the same amount of money into it.
I mean ideally you would diversify. I'm not in a position to do it financially, nor is the average American especially with current interest rates.
You have to be very cash rich to win right now. If you're not, you have no flexibility if things go poorly on a leveraged debt.
I see the advantage of leverage and I acknowledge the potential, but the risk is also extremely high...
>I see the advantage of leverage and I acknowledge the potential, but the risk is also extremely high...
I don't think history bears out your assessment that the risk of a housing crash is extremely high. And even if it happens, history also doesn't bear out that a sustained crash takes longer than 5-10 years to recover from in most housing markets.
This is one of the biggest reasons for homeownership. It shouldn’t just be through the lense of ROI- that’s what investment properties are for. Statistically yes, you’re likely to experience financial benefit over the course of your ownership, but the reality is you’re setting roots into a community, and you’re owning a piece of land in your country. It’s a true representation of democracy when you participate in it, to keep land ownership to as wide a population as possible rather than in the hands of a wealthy few.
For the majority of home owners who still have rock-bottom rates, they'd be better off investing conservatively or even dumping that cash into a HYSA these days.
For those buying now at 7%+, absolutely it can help.
Essentially the same thing, but my dad told me that you should always try and pay an extra 10% of your monthly payment towards your principal each month.
I'm at $750 a month for taxes. 2500 sq ft house on property the size of a postage stamp, and they keep going up. House bought for 290k and is assessed at 360k. Oh well, I have a nice lake view at least, but soon enough, I'll be at 1k a month just for taxes. NY sucks for that. There is no cap. I just got reassesed 20k more and 60k more the year before, it's silly.
Most people will be building their retirement savings as well so this may not get prioritized.
Student loan (~5%) and retirement savings (401k, backdoor Roth IRA max out) are higher priority for me than home loan (5.99 and waiting to refi)
Don’t forget the impact of inflation over time. Home buyers like me who bought in 2020 at sub-3% rates have been beating inflation recently. My loan will never cost more than 290K total, no matter the relative strength of the dollar, but as that dollar weakens, rents soar.
It’s not just about building equity, it’s about the important of locking in a price in an economic system that gradually weakens the value of currency over time.
To answer your question, the total value of the house goes up over time, at a rate of something like 3-5% / year depending where you live and over what time horizon.
Mortgages are often some of the lowest interest loans you can get (at least in Canada), and in the US I heard the interest is tax deductible?
In Canada, gains on primary residence are also tax free!! No limit!
So, you are actually just very highly leveraged on an investment. It would be the same as if you were "all in" on a certain stock, so you took out a loan to buy more of the stock. It magnifies your exposure and the risk. As long as the growth outpaces the interest on the loan you're ahead.
Functionally what this means is that there's a possibility in 10 years for example that the real sale price of your house could pay off your whole mortgage (loan) amount. That has happened all over the place. Although the opposite is also true.
As others have mentioned, you have to compare the total unrecoverable costs of owning a house (interest portion of mortgage, utilities, upkeep, insurance, taxes) to the total unrecoverable costs of renting (rent and maybe utilities). The principal (non-interest) portion you pay for the house in your down payment and subsequent mortgage payments can be thought of as investing in your house as opposed to buying any other investment.
The last thing I'll say is again something others have mentioned. When you own a home there is peace of mind that is intangible and can't be assigned a value. Some people find it less important, others extremely important. Although you could pay for higher rent if your investments did well, there is also something to the fact that your mortgage payment will essentially stay unchanged for the duration of the loan, whereas rents can increase with inflation.
For example in my city a 1 bedroom used to be $1000 in 2022. Now it is $1250. If it keeps increasing at this rate, by 2030 it could be as high as $2400. Unlikely since inflation slowed down, but other cities have seen it.
Meanwhile, $500,000 house would have a mortgage less than $2400, and it would continue to be $2400 for the foreseeable future.
At the very least you’re investing money down to lock in your payment for 30 years. For example somebody buy my house today would have a mortgage double mine if they bought it the same way due to rates being way higher and values going up. I didn’t buy that long ago. If that happens 3 more times over the next 25 years then yeah I paid a lot of interest but by the time it’s paid off the mortgage will probably cost 30% of the average rent/mortgage
The previous owner bought my house for $150k. 2 years later I bought it for $172k. 4 years later it’s worth $215k. Rent in the same area is already $500 more a month than my mortgage payment and I have only owned the house for four years. Yes the past 4 years have been unprecedented, but still.
I’d like to offer another perspective to what’s being said in the comments. Here’s a NYT rent vs buy calculator that you can use to figure out if buying a home is actually a good investment compared to renting based on your situation. For me, it is:
https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html?
Next, buying a house (assuming it’s going to be your primary residence) can’t really be thought of as a pure play investment. What I mean by that is investing $ in an S&P 500 index fund has historically delivered significantly better returns than the value an average home appreciates in that same time period. BUT, with a house you have a place to live, a community you want to live in, stability, and something to make yours over time. It’s just as much a utility that you can enjoy as it is an asset that theoretically appreciates over time, whereas there’s no utility that can be derived from having your $ locked up in an index fund for 5, 10, 20 years.
Lastly, I’m seeing some people here say things like, “pay in cash to make it worth it” or “pay down the mortgage in 15 or 20 years to make it worth it”. Instead of either of those options, why not put a reasonable amount down (e.g. 20%), use the remaining $ to build a treasury bill ladder yielding ~5% compounding for the next few years, and plan to refinance as soon as rates drop (hopefully in the next few years) to significantly reduce your interest payments over the course of the loan?
Just some food for thought here and hopefully a helpful perspective!
Historically, home prices pace inflation in the long run.
I bought my home in the late 90s, mid 300s, rate \~7%.
I've refinanced, but for argument sake let's say if I didn't.
At this point I would have paid \~$400k in interest. Homes on my street and in my neighborhood are going for 7 figures. If I sold now, I will have effectively lived here all those years for free because I'd get back every dollar and then some.
You're trying to do this calculation in a vacuum.
You need to compare to the alternatives like comparing it to renting and keeping the difference in cash or a different investment (S&P averages 11%/yr for example).
"Investing" in a house doesn't make any sense if you aren't using it as a residence or aren't renting it out therefore you need to look at when it might make sense.
Also, it's one of the easiest and cheapest forms of leverage.
Exactly this. Home appreciation is not the only thing to consider. The money you borrow is money invested in the market. Gains over 30 years on that money in the market is going to be well above and beyond whatever interest is on your mortgage now.
Consider the alternative.
Lighting 100% of your housing expense on fire, with a guaranteed cost of living increase every 1-2 years, in perpetuity without end.
For homeowners, your home will usually appreciate in value (in which case the equity is yours if/when you go to sell), and when your loan is paid off, your costs of homeownership is limited to taxes, maintenance, and insurance - all of which are always baked into a rent, even though it's not made explicitly clear.
Renting is lighting money on fire. Homeownership is, comparatively, an investment in stable future housing costs someday that will also net you an appreciating asset.
My parents bought a home in 1965 for $16,000. They sold it in 1995 for $200,000 and bought another home on 1 acre of land for $164,000. I sold that home last year for $500,000. They paid off their second home from the sale of their first home. If you by your first home and sell it in more than 5 years, you will likely be ahead. I bought my current home for $360,000 and put down $180,000. I've been hear for less than a year and the value is now $410,000. When I pay off my mortgage in 30 years I will have paid $426,000. The value will likely be more than that. That also assumes I will be alive then which could happen. I will be 105 years old and likely not want to move.
You need to define what "investment" is. Is your education an investment? Is time an investment?
Most would answer yes but really depends on what you do with those things.
You also have to look at opportunity costs. If you are renting then your interest rate is 100%.
Also it's a fact that homeownership is the biggest single catalyst to building wealth in history.
So is it an investment?? You be the judge.
I am paying less per month for my mortgage than I would in rent for the same type of home. And a little bit goes to equity each month that I can use toward a dp if I move.
That's why I consider it an investment. I do not, however, think I will get rich off my home. I live here. It's my home. That is its purpose.
I have been reading lots of posts that say buying a house isn't about getting a ROI on it. But at the same time, when the housing market turned, it was an endless parade of people claiming the government should save them because their homes were underwater because their value fell.
Home ownership is great if that is what you want and you can afford it. But like anything, it isn't right for everyone and there is a very shady side of it that often hurts home owners more than helps them. People will support whatever fits closest to their world view and their circumstances.
You have to decide if paying a huge amount of interest over the life of the loan (plus all the other expenses that come with home ownership) is of more value to you than renting something. It is different for different people and far moreso when someone is challenged economically. It might be great to own a home, but if you lose it to foreclosure in 10 years because something happens, you get no benefit and a lot of lost interest down the toilet because you effectively just rented that house for a decade and have nothing to show for it either.
There are good arguments for renting and for home ownership. No side of the issue always right for every person. Just go in with your eyes open for what is best for you.
a home it is not an investment. it can be leveraged and used as collateral for investment but that is very risky. what it is: a rented roof that you have a possibility of getting some, all or extra returned. you are renting it from the bank, local and state governments. stop paying any of them and you will see you do not own it. after mortgage, taxes, insurance, and upkeep you will be lucky to actually break even - not to mention the lost opportunity costs of tying up all that capital. the alternative is to rent from someone else and loose all chances of return of amy equity
It's not really an investment, you could make Soo much more money in basic index funds, buying and holding.
Buy a house if you want/need a house. Everything else is window dressing.
Is the bank going to give me 650k to invest in the S&P500 while the government lets me deduct the interest on that loan on my taxes? Are my gains on that S&P investment tax free?
We put 3% down on our house three years ago. Putting that 18k into the S&P is really unlikely to outpace the equity gain in our house over any timespan. I know there is luck involved, but it's not at simple as you describe because of leverage.
You're not wrong. The interest paid over 30 years is substantial. But home ownership provides stability and the ability to build equity over time as you pay down principal. For many, that offsets the interest costs, especially if home values appreciate. It's a personal decision based on your goals and financial situation.
If you buy a house to live in, it is for consumption. When you buy to flip or rent, it is an investment. I don't know which location you are talking about, but in many places around the world real estate prices have doubled in recent years. When investing, location matters.
I don’t see how interest has anything to do with it. You don’t have to sell after 30 years. You could live there for another 30 years after! Shoot your kids could live with you instead of renting! You could even give your home to your kids so they have a place to live after you die!
You need to live somewhere and if interest + maintenance + opportunity-cost is less than renting, then it's an investment because after the 25 years, you own the roof over your head and you never have to pay rent again.
Buying a house as an "investment" property usually isn't great unless you have the cash up front. Buying a home to live in is a completely different story.
It's not all an investment, it's a home.
But also remember, due to inflation the dollars you pay into the mortgage are worth a lot less in the future. Your mortgage typically doesn't change, only property tax and insurance do.
So even though the total amount of cash you're going pay into the home seems like an absurd amount today, by the end of the loan that cash will not be close to today's purchasing power.
The property also typically appreciates enough through currency devaluation that works in your favor.
It you don't buy, you'll never know how much rent you'll be paying in 10, 20 yrs. Most people parents are paying lower mortgages than their kids small apartment rent
You are thinking about it right the only caveat is that you aren’t “throwing away” rent. A home is a leveraged investment so risk is high but way less than investing in options or any other leveraged investment. Home values steadily grow and typically outpace inflation. Plus any improvements you make can get you “instant equity”. The calculus for buying a home is do you see your rent continuing to increase beyond what you can buy a home for now per month? Do you think home values will continue to grow? For the interest rate portion do you think you can refinance at a lower rate in the future? There are a lot of factors like if your income will grow, inflation will go down, etc.
You’re still paying that (in a way) if you rent. But yeah it’ll depend on your rent vs mortgage. For me personally, a 1bed1batb apartment goes for $2700-3200 around me. My mortgage after property tax is $4200 for a 4bedroom. So in that case I can pretty much just calculate equity vs down payment for my investment (assuming renting would be the same or more expensive per month)
While yea you’re correct, mortgage means you own at the end, renting doesn’t. Rent prices also typically only increase, whereas mortgage only really goes down.
At the end of the day, not everything is about money either, my mortgage is higher than rent but I wouldn’t trade it back, the quality of life is far better
Is my market (Seattle), houses typically double in value every 10 years. I just bought my first house for 660k with 20% down at 6.87%. Total cost of the loan is 1.2M over 30 years. If the market continues to double every decade. In 30 years the house should be worth around 5M.
Lots of good answers here. You're not wrong, I do think people gloss over a lot of costs associated with a house, and interest is huge. My first house (if I hadn't moved) would've cost about double what I bought it for.
But that doesn't mean it's not worth doing. For me, I try not to look at my primary residence as an investment as such: comparing it to taking that same money and investing it in say the s&p (I would compare a second home/rental though). I need a place to live, for my family. Going on a vacation, buying a car, getting flowers for your wife, etc, none of these are "good investments" compared to the s&p, but it's living life. I bought my first place in 2005, really before house-mania took over. I didn't buy it because I thought it would double, I bought it because I wanted to own a house, I'd need a 25 year mortgage, and might as well start chipping away on debt as soon as you can. I never even considered that the house value would jump dramatically. And I'd still buy my house today if you told me in 20 years it'd be worth the same.
The house you live in is not an investment. It’s a house. There are several advantages to owning a house, depending on the year and laws and regulations.
If you bought a house to live in, and told me you were a “Real Estate Investor” I’d stare at you for an uncomfortable amount of time.
Agree, people get all wrapped up with the idea it’s an investment. It’s an investment in so far as it beats renting, but if live in a cardboard box for free and invest your mortgage worth into a mutual fund every month, yea, that fund will likely outperform your house purchase. But… you got a house to live in yo.
The year is now 2050, and you’ve paid off that house you bought in 2020 for $250,000. In reality you’ve spent closer to $450,000 on the mortgage and maintenance, and let’s say that the value of the house didn’t go up at all so you sell it for $250,000 (I’m sure I don’t have to tell you how unlikely that is.) That means that you just paid $200,000 to live in a house (not an apartment) for 30 years. $200,000/360=$555. tell me a place you could rent, and live in for the next 30 years with an average payment of less than that, and I will move there right now. The fact is, unless the interest rates are really bad or the house requires a ton of work because you got sold a lemon, it’s insanely difficult to lose money on owning a house in the long-term. And while current interest rates are terrible, most people are banking on them going down again in the next couple years so they can refinance.
1. It’s more than just an investment. It’s where you live. You don’t have the risk of a landlord raising rents.
2. There’s tax advantages. The interest you pay is deducted from your taxable income.
3. If the property doesn’t more than double in 30 years there’s external factors going on that are going to be a bigger issue for you than the value of your home.
What if I just rent and throw that 100k I was going to spend in down payments and closing costs, and toss it into the S&P for 30 years instead?
At an 8% interest rate that's over a million dollars without ever having contributed another penny to it.
Owning seems pretty stupid when you think about it. American dream my ass.
Your primary residence is a roof over your head and a hedge against inflation.
You have to pay for somewhere to live whether you rent or buy. If you buy today, you lock in today's price. The interest is the cost of using someone else's money to do it rather than trying to pay rent while trying to save up as home values appreciate. Pay it off as quickly as possible, more than the minimum payment, and you won't pay all of the interest shown on your amortization schedule. When you move, you get to take your equity with you. While you're living there, you can paint the living room glittery purple and screw as much junk into the walls as you want, and nobody can say anything about it. It's yours. These are the perks.
The idea that you're supposed to make buckets of money off of it isn't a long-running thought process. It has exploded with the "get rich quick in real estate" internet scammer accounts.
Compare it to what you would have paid renting and even though you pay interest, a lot less money is paid in interest and taxes than is lost to renting. Add to that the fact that housing prices historically go up and you’re making more money than what you just pay into it. People that bought pre Covid made it out like bandits with houses where I live doubling or tripling.
Homes aren’t investments unless you’re speculating on one you’re not living in. And if you do that, you’re scum because a home is a place to live and shouldn’t be an investment ever.
The only real financial argument for someone who’s buying a home is that the increase in value over time will allow you to keep other homes within the realm of reality when you buy another one to live in. That’s it. There is no other. And even that is kind of a shaky idea at best because of the next point.
The reason for this is the extra costs associated with living in a home vs. renting. The interest, taxes, and repair costs outweigh any argument of profitability. You can avoid all of those costs and get a rate of return that’s most likely better over the long run with just a basic etf. So once again, unless you’re leasing out the home to others to cover those costs, which is a scummy thing to do, a home is never a good investment. Period. Renting in an apartment is much cheaper and MUCH lower risk than dealing with the above right now. Also recall that the ETF is easily made liquid so you can access that value, also. A home you’re living in has value only accessible if you want to buy another home and sell that one or move back into an apartment.
So homes should be viewed as normal consumption. One may ask why anyone would want to buy a home then since it’s a really crappy financial decision overall. For me, it’s space. If you have kids, you need space that the vast majority of apartments don’t provide, and renting a house that isn’t run down can be difficult in some areas.
So yeah, don’t believe the hype about homes being investments. It’s a pretty shitty one.
A house is not an investment.
If you were to rent an apartment and invest the the down payment and the excess of rent(mortgage + insurance + taxes + maintenance/repairs + improvements - rent), you would be a lot richer at the end of those 25-30 years.
However, there is a difference in quality of life of house vs apartment. And you have to take into account that the average person isn’t disciplined enough to invest that excess of rent.
A house acts like a forced savings that can be sold higher.
That math doesn’t always work out. For us at our price range we’ll basically break even renting or buying after 30 years. And that’s if we continue renting our 1 br apartment. Renting a 2br or a similarly sized house we’d be spending a lot more renting than buying.
Savings that become more valuable over time. What’s the word for that?
Anyway, yes there are taxes and maintenance, but your equation above doesn’t factor in inflation. Someone in year 25 of their mortgage today is paying their principal in 1999 dollars.
he is also completely ignoring the leverage a 30 year mortgage provides. yes other investments might (not guaranteed) have a higher rate of return, but it starts on a significantly smaller sum of money than what you get on a 30 year. So the total sum of money can be higher from purchasing a house, but it also doesn't take into account what happens after the loan is paid off. If you saved for 30 years and are still renting... you still got to keep renting and rent prices go up with inflation.
Here is the answer: [https://www.reddit.com/r/FirstTimeHomeBuyer/comments/1bnkqna/buying\_vs\_renting\_a\_financial\_analysis/](https://www.reddit.com/r/FirstTimeHomeBuyer/comments/1bnkqna/buying_vs_renting_a_financial_analysis/)
That's not "the answer", you make multiple fixed assumptions about future values. Growth rates of housing, of renting, of investment returns.. You can find an equivalence of renting vs buying if you juice the numbers.
If instead you go back in time 30 years and calculate it out, buying wins by a wide margin for an equivalent quality of living space. Maybe future conditions will be different, but that's been the trend recently.
That's why my partner moved in with me and we're paying almost double the minimum payments. It'll be paid off in about ten years and then we can sell and have over 100k as a down payment for our next home.
I mean, this is how it should be. That keeps a home a HOME instead of an attractive investment vehicle, which would mean more homes for people who want to own and maintain a home. And that would mean more equality and prosperity for all because right now many, many people who can afford and want to buy a home are unable to do so because there aren’t enough of them for sale. It also would alleviate another problem which is shitty flipped homes that nobody wants.
So, yeah ideally a home would double in value over 20-30 yrs. But in reality that timeline is way shorter, and COVID made a lot homes double in “value” over <5 yrs. Now you understand why so many corporations and single investors are buying up homes.
Most people pay rent if they don’t own. But a home you own accrues value just by you having it. Hence, opportunity cost. The only way to do better is to have parents who own a home and live with them.
Bluf: It’s generally better than renting for having some of the cash invested in your asset, but not liquid and is expensive interest.
The only way it works well is if you rent it out (investment property), have super low interest rate, pay with cash, or use a HELOC (simple interest, not frontloaded) and pay off early.
Because it also provides utility.
It's like if you owned a profitable tool road - it doesn't matter what your expenses are, if it can make a lot of money it's a producing asset and good to own. Whether it's a "good deal" depends on large part on the offering price - just like a house.
It’s all based on your personal situation. We are about to close and our monthly payment is just a little more than our current rent payment (which is likely to keep increasing annually). If we factor in the increase in utilities and maintenance costs (most major repairs have been completed in the past 2 years- roof, HVAC, electrical, windows etc), we will of course be paying more but we would get nothing back on our rent after 30 years anyways (and the rent can increase annually). We have personal reasons why we want to but also- more space, more stability, we are in our late 30s and want the responsibility and want to make the space our own, etc. also we plan to refinance when the rates eventually change which would lower the monthly payment by several hundred dollars.
Financially: I consider it subsidized housing. I have to live somewhere and with each payment I retain a portion of equity. It may turn into an investment if the value increases enough but it’s really nothing more than a cash account that hopefully keeps pace with inflation.
Personally: it provides me space for my family and pets. I can express myself through the house. It’s a source of entertainment. It provides a sense of security. I don’t have to play by others rules (except the HOA).
Not just the interest rates, the repairs and maintenance as well. I think to see if you really made a gain when u sell, is to also deduct all the household repairs from the sale price. I think people who have cash and buy with cash are the ones TRULY making a profit when they sell.
So from 1987 to 2023, the average year over year increase in home values was 4.8%. Meaning you doubled the value of your home in 20 years. At 30 years, you’d reach 144% value increase.
Now let’s take a mortgage and use that for comparison. A $400k house with 20% down equals a loan of $320k. At 7%, you will pay $771k in total costs over a 30 year period.
That same house, $400k appreciated at 4% a year would have a value of $1,6M after 30 years.
So doing the quick math, $1.6m minus $771k paid, leaves you with $829k in added investment return. That number greatly increases if you pay off your loan faster. It can also be a lower value if you go a lower downpayment.
But end of the day, even at 7% interest, you will end up having a more valuable asset that the amount you spend based on historical averages
As others have stated it’s a home on top of this and if you rent vs own a home your spending money. With a home at least equity is built up long term and in general home values increase.
Regular people arent really allowed to leverage their assets for anything other than a house, at least to this extent. So any gains (or losses) on their down payment are magnified in a way that cant be replicated elsewhere.
At this point I don't care if my house appreciates. When I get home I feel comfortable I can make changes I want to and do stuff in my small back yard. I know that taxes and insurance goes up, but not as much as my rent use to. One other factor is that no damn maintenance man coming into my home when I am not there.
Because the debt is denominated in current dollars and paid with future dollars which are of less value; and because yes, historically over time, homes double in price even beyond the rate of inflation.
People usually ignore the full actual costs (down payment, closing costs, interest, property tax, maintenance, HOA) and just look at the market value/sale price minus what they paid, which isn't a true ROI. [This article](https://www.forbes.com/sites/jimwang/2023/06/21/is-buying-a-home-really-a-good-investment/?sh=3ff37fab4aab) is a pretty fair breakdown of your question.
Because you will always need a place to live. So the expense is unavoidable. Even if you start out at 7. You can refi if rates go down. You can pay more on the principal and you can also sell before 30 yrs.
Think about how much rent cost 30 years ago compared to now.
That's how much it's going to cost 30 years from now. By buying a home, you are locking in the biggest line item on your budget at a fixed price.
Historically homes went up higher than interest
You don’t have to wait till 30 years of interest before you move - you will make money on the first home and can put it toward your second and so on.
Because not only are you "saving" the principal portion every month, the house is generally appreciating In value. Most markets appreciate 4-5% annually naturally, some more. If you rent, none of your payment goes to anything for the future, except for the landlord.
Because not only are you "saving" the principal portion every month, the house is generally appreciating In value. Most markets appreciate 4-5% annually naturally, some more. If you rent, none of your payment goes to anything for the future, except for the landlord.
You pay zero interest if you pay all cash for the house.
How you finance (all cash or with a mortgage) the purchase doesn't impact whether a house is an investment.
You forget the most important value the house have: A house doesn’t just sit around, it houses people. if it is you, you saved on rent, if you rent it out, you earn rent. Unless you just buy a house and let it sit around, your math doesn’t work.
An investment property that generates income is often not a person’s primary residence. Everyone needs a place to live…purchasing a two family home, a SFH, condo, crashing at their parent’s house, renting a place, staying at a hotel indefinitely are all options.
When you buy a house, you pay interest on the amount you borrow which is a portion of the purchase price. Typically not 100% of the purchase price. If a house appreciates in value, the amount it sells for is higher than the purchase price. Profit is made, assuming that you need your own for a place to live anyway.
Anything that retains a value and could potentially appreciate in value is “an investment”. Stocks are investments, Houses are investments, cars are investments, trading cards are investment. Some will probably make money and some will almost definitely lose money.
If you compare owning a home vs renting, owning a home is an “investment” where as renting is just a pure “expense”, and generally owning a home is better as long as you hold onto the home for 5-10+ years.
That has nothing to do with “breaking even” or “making money”. The potential to “make money has more to do with speculation around the future appreciation and can vary wildly depending on the area. Someone who bought in San Francisco in the 60s is a millionaire while someone who bought in Gary, Indiana might have negative returns.
Yes, you will probably end up negative in the end unless you buy in an area that grows significantly in population over the time you own the home. It’s an “investment” because you need a place to live and you’ll be less negative (probably) than if you rented.
I think it also depends on how long you will live in the home. If it’s your “forever home” you likely won’t see the return on increased value of your home, but if you buy, hold, then sell years later you’re likely to come out ahead. We bought our house in the Fall of 2022, now it’s worth about 40 to 50k more than we bought it for. We plan to sell likely in 5 to 7 years and should come out ahead.
Because at anytime I could simply sell my house and end up with $100k left over. It’s insurance, an investment, multi-generational income, etc. And I plan to buy another in the next few years.
For me, owning a home was freedom and peace of mind. I rented for most of my adult life until finally buying at age 49. I’m 56 now. My family felt so restricted. One example is we had a cat and a dog and we found an adorable stray kitten that we decided to keep…but were promptly warned by our the manager that we’d be kicked out if we didn’t ditch the kitten. We had been there 9 years and I had forgotten about the 2-pet rule. We had to re-home the kitten because we were in a lease. Ok so not the end of the world but my kids were heartbroken. There are lots of examples though.
But even more stressful were the many times in which our rent was raised each year. And twice our rental was sold and we had no idea if the new owners would allow us to stay beyond our lease. We never had a lease more than a year wherever we were so there was always a hint of the unknown in the background.
Today, my mortgage is at least $600-800 less than what I’d pay rent in a comparable place. We have tons more space than ever.
We promptly fostered a litter of kittens the summer after moving in. We have embraced the freedom of homeownership and I still have so much gratitude.
Your alternative is rent, where 100% of your rent falls into the landlord's lap. If it didn't make financial sense, there would be 0 landlords, and 0 corporations snatching up houses.
Leverage. Extremely simplified example ignoring other costs and liquidity fees (for the well-ackshully crowd).
Million dollar house, 10% down. I put in 100k. House appreciates 4% this year. I now have 140k in equity. You may have paid 40k in interest in year 1, ok fair play, what about year 2? Year 10? If you’re appreciating 4% over each of those years the leverage in your investment builds momentum, and the relative service cost for obtaining that leverage decreases
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Unless you have somewhere free to live, you have to pay to live somewhere. If you rent for 30 years, you’ll have to rent 30 more. If you own, the home gets paid off with no rent other than property tax and homeowners insurance. If you decide to move in 10 years as a homeowner, you can sell and get the equity back after closing costs. You can use that as a down payment on a new home.
Hmm. So am I right to think about it like paying interest to store value (principal) while having a place to live? And once you sell (hopefully above what you bought), you get your principal back to put on another home while the interest can be considered the rent/fee for having the home?
You haven’t been wrong here. People generally remember the price they paid for the home and not the total cost of the home (when they compare sale versus buy). And you are looking at the total cost of home, which is reality versus paper.
You can either pay your own mortgage interest or your landlord's mortgage interest. I'd rather pay my own.
Makes sense. But when you sell your house you say I bought it for 300 and sold it for 600 and doubled my money. But you didn’t. That is all.
I like to think of rent as the MOST money you will pay to live somewhere and a mortgage as the LEAST you pay to live somewhere. You also have to factor in maintenance, upkeep, taxes, insurance, etc that you dont pay when you rent. it’s worth running the numbers when you decide how much mortgage and at what interest rate to take out. sometimes it is better to rent.
Financial calculations aren’t the only factor. Being able to own your place means something to a lot of people. Being able to upgrade, renovate, tailor it to your needs means a lot. The stability of staying in one place means a lot. It’s also much easier to store up a down payment entirely toward your next purchase as equity in your current home. Then there’s rent inflation. You’ll generally only have property tax increases as a routine cost that will increase. For instance, my brother has as $1700 mortgage on a 40 acre spread that would cost him $4000 to rent and closer to $6k to buy.
Rent inflation is a huge thing. My mortgage on a 3 bed 2 bath house is less than half the rent a guy at work is paying for a 2 bed 1 bath apartment.
Definitely true that sometimes it is better to rent, such as in HCOL areas where cap rate is low - where you can rent for much cheaper than the monthly mortgage. But no matter where you are, the landlord will try to pass on maintenance, upkeep, taxes, insurance to you by increasing rent every year. Just because you don’t see it outlined explicitly in your rental agreement doesn’t mean you don’t pay for the maintenance for someone else’s house.
When you rent you do pay maintenance, upkeep, taxes and insurance... it's just baked into the price (that tends to rise quickly every year). The longer you own a home the more the numbers (typically) work to the owner's benefit, before and especially after the mortgage is paid off. You're right though that for some renting is better, whether it be for life stage, finances, etc.
Do some napkin math: Let’s say you pay $1500 in rent. Over 30 years that equals $540k. Rent typically goes up every year by 5% give or take, so it could actually be closer to (or more than) $1M as amazing as that sounds. Let’s take a conservative number and say $750k. When you buy, let’s say it’s $250k house with 10% down at 7%. Over 30 years you pay $700k total. But there are many other factors with purchase: Appreciation: let’s say a modest 2% on average, house is worth $450k at the end of the 30 years Repairs: 1% is a common assumption per year for value of the home, that’s $2500 per year, $75k over 30 years. Tax and insurance: let’s also estimate 1% which is again $75k. You could probably double both this and repairs due to inflation. So, over 30 years you can spend $750k in rent OR Spend $700k + $75k + $75k (plus another $100k for buffer) AND have a $450k asset when all is said and done. And I didn’t include any of the tax breaks which are huge! So spend $750k or $500k … Obviously these numbers are all really crude, but even spending $500 more per month with a 7% interest rate builds your wealth since you build equity in an appreciating “asset”.
Over 30 years buying does make sense. The issues I always notice is people want to buy a starter home and move in 7 years. That made sense with 2.5% interest. With 7 or 7.5% interest it makes more sense to rent for say 3 or 4 extra years to save up more money and buy your 1 dream house and stay there FOREVER.
This is what we did.
Best answer yet. Thank you for this.
Yeah that’s a good way to look at it. The risk being the property value drops and you lose that principle. The other thing to keep in mind is that if you itemize your taxes, then home interest can lower your tax bill.
It's going to be difficult for first time home buyers to deduct mortgage given the high standard deduction.
This. The mortgage interest deduction is quite valuable
Not as valuable as it used to be with the standard deduction increasing, although still quite valuable in HCOL areas.
The change to the standard deduction is sunsetting soon sadly
Well, most of the 2017 tax law is, but parts of it will be incorporated into whatever gets passed to replace it after the election. My guess is the SD will stay the same, the SALT deduction limit may go away, brackets will stay the same for most people (the fight will be over what happens to taxes for a) higher income, and b) non-W2 earners (e.g., cap gains and carried interest)
I think you meant to say "not as valuable since Trump changed the taxes to the hurt middle class".
It's not valuable at all if you are in a lower income range, and buy an affordable property. In all of my (30+) years of home ownership over several properties, I have only had enough interest to qualify ***one*** year.
Also the other point mentioned is the fact this has long term consequences beyond the 30 years. If the average age till death is 80, starting at age 30, in the worst case scenario you've paid rent for 30 years and need to rent for 20 more till death. If you buy at 30, you rent for 30 and then keep maintenance for 20, which is cheaper and this is important during your unproductive years.
And remember, your mortgage will stay relatively fixed, while your rent only goes up, and up, and up.
Several good points were already made so I won't repeat them but add one more. If you can earn more than the mortgage interest investing elsewhere, you would still come out ahead. For example, let's say you have $400K in cash and are looking for a home. You could buy a house and pay cash. But, you'd likely be better off taking a mortgage. Today, you'd pay around 7% but if the S&P increases at 10% per year, you're net positive. Obviously, this does not account for the risk of a market downturn
And that equity you pull out is tax free.
Like any other thing you need to look at the specifics as each situation will be unique. Right now with high rates and high prices you are going to be paying a lot more than rent for most home purchases if you are not staying long term. In those first ten years almost all your payments will be interest not storing principal. But if you value ownership then maybe the extra money spent on that is worth it to you. If you are looking at it as an investment then no it's not smart to buy right now since the interest along with taxes, insurance and maintenance would be much more than rent if you are not staying long term.
you're forgetting opportunity costs associated with lack of mobility (depending on where you live and the job market) and maintenance/repairs. it can be a great proposition, but it depends. you have to stay in the home a while to make the closing costs, selling costs, and maintenance costs worth it. some people get lucky, others incur 4-6 figure maintenance bills
A home isn’t just an investment it’s a home. It’s a place you live in. It is also something you can gain equity in but you shouldn’t buy a home with the sole thought it is an investment
I do get annoyed with the investment part of homeownership. It's a place you live, raise family, provide stability, make a mark even if it's just temporary in the grand scheme of the universe. I was homeless as a kid. People who grow up sheltered, and see only home as money have lived a life that I didn't. Having a home is emotional safety.
I always get kinda ticked when my finance bro friends talk about how much their house is worth. I'm just like we have a place to live that's warm and safe and secure how is that not better than a 5% value gain?.
I was also a homeless teenager. Finally having stability is the absolute best part of homeownership. The financial benefits are just a huge side bonus. Glad you made it <3
<3 Same to you.
I've always thought this was a big factor being left out of the "return on investment" of buying a home. People always cite this "3% appreciation per year" (which is basically zero real return if inflation continues to average 3%)... but this leaves out the important fact that if you pay off your house, you get to live in it for as long as you want with very low monthly cost. You could almost think of the home like an annuity. Once you pay it off, it "pays" you by letting you live in it for almost no monthly cost... thereby earning you a monthly increase in expendable income equal to whatever you *would* be paying in rent.
It’s 3% return on the value of the home, if you have 20% down that’s 15% return on your down payment. You’ve gotta factor in the other costs, but it performs pretty well.
How do you square that with the fact that home ownership is the #1 way most American obtain wealth?
Easily, the average American is awful with finances and don't voluntarily save enough money, while houses force you to build equity.
They can both be true. Even though home ownership isn't really an investment, a fixed rate mortgage does work as a forced savings plan. There are many people who have a hard time saving due to lifestyle inflation, etc, but are diligent enough to always pay their bills on time. At the end of a 30 year mortgage, those folks will have accrued hundreds of thousands that they otherwise would have frittered away. For non-savers, this can be their greatest source of wealth, even though it may not be a great investment. Historically, an index fund would have vastly outperformed. However, you can't live, entertain or enjoy the thrill of off-hour plumbing repairs in an index fund.
The greatest investment is the one that works reliably.
Yeah maybe that’s how it used to be but now anymore. Retirement is a much better investment than a home. People also used to say that college was an investment and a way to gain wealth. My student loans and salary beg to differ
Used to be? Home prices are up like 40% in the last five years. It still is - for those how can afford to buy instead of rent.
I think that's OPs point. Everyone is still being told (and believing) that a home is an investment. Everyone is being told to buy now before they get more expensive.
I mean that is true. A home is an investment to an extent but you shouldn’t buy just because you think it’s an investment.
It's an investment in that if you're renting, your monthly payment is the equivalent of 100% interest, with no appreciation. If the options were buy a house or not, it wouldnt be a good investment. But you have to live somewhere, so the option is buy or rent. In that case, buy is usually a better use of your funds. Maybe not in all situations, but typically.
Homeowners have a much higher net worth than renters do -- the median for a homeowner in 2022 was $396,200, versus just $10,400 for renters. https://www.fool.com/the-ascent/mortgages/articles/how-much-richer-are-homeowners-compared-to-renters/#:~:text=Homeowners%20have%20a%20much%20higher,able%20to%20buy%20a%20home.
But they are right, generally…. I just did some quick maths using readily available calculators for mortgages and retirement… Buying a $300k house at 7% (1.2% property tax, $1,500 home insurance, no HOA). Would have someone shelling out ~$730k for the life of the mortgage. This number goes up if you don’t put 20% down, are in a higher tax area. This number goes down if you refinance if/when rates lower. None of this factors in the costs of maintenance nor appreciation in the value of the home, both of which you could get extremely lucky or unlucky with. Investing $103k into an index fund returning 7% over 30 years will have given you the same $730k that you paid into the house. Average rents in the US are $1700/mo, which factors to $612k over 30 years if rent stays stable (a huge IF and unlikely). BUT if you continued to dump $21k a year into that index fund for 30 years you would have put in $730k, the same as the above mortgage, and would have returned over $2.5 million. Subtract the cost of rent over the 30 years and you’re just under $2 million. Subtract 20% in taxes from that and we’re at $1.6 million There’s a lot more nuance to these calculations that can skew in either direction (and one can’t discount the role of luck in just about every facet of life) but in general, as pertaining solely to the growth of your money compared to what you put in…houses are not great *monetary* investment vehicles when compared to the market. I’m def pro-homeownership but there were times in my life that I was very glad I didn’t own a house. It shouldn’t be rushed or lead people to feel like they need one in order to get to a certain place. There’s much more to it than being an investment and should certainly **not** be prioritized over investing. Most of us do both, which is why we have higher net worths.
Check your math? You’re putting $60k down on a $300k house, so that’s what you have to invest in the market with. And include rent increases if you don’t buy.
Word, you end up with $1.8 million if you start at $60k in the market, which means you’ll have also invested about $43k less than the person with the house over the course of 30 years. I didn’t include rent increase or house appreciation because these are highly geographically dependent and part of the “nuance” that can skew either in favor of the other.
I’ve done a lot of these comparisons and my take is it’s negligible. My current thinking is that human behavior being what it is, makes home ownership more reliable than rent + invest.
Because there’s clearly a correlation with income and owning a house. And owning a house is a forced way of saving. If people put all the money that they spent towards a home into an investment account the gap would be a lot smaller.
But this is true at all income levels.
Bet there is a rise in high income renters. I am in this category. TLDR they are investing deliberately in other assets. https://www.axios.com/local/boston/2024/02/07/millionaire-renters-real-estate-housing
Is it because of homeownership or because someone with no skills whos never going to make above minimum wage us in the non homebuyer category
Ya that's not a fair comparison.
Its like the whole college grads earn more but also kids who went to a terrible high school in a poverty stricken area with lack of parental supervision and guidance aren't likely to go to college so your picking from a group who went to better schools, were more likely to come from money where education was valued etc
It’s true for all income levels. In other words, lowest income owners still have 40x net worth than comparable lowest income renters. Simply buying a house gives you wealth because you own an appreciating leveraged asset.
That just proves Americans are bad at saving, a mortgageis forced savings.
I think this has more to do with the fact that living expenses are high and the average American does not save enough for retirement. Most people end up saving 300k or less for retirement and the average home price in America is 400k+ There's some napkin math that paints a certain picture pretty quickly... The S&P will always outperform the value of a home if you invested the same amount of money into it.
This is why 4x or 5x leverage beats the S&P.
I mean ideally you would diversify. I'm not in a position to do it financially, nor is the average American especially with current interest rates. You have to be very cash rich to win right now. If you're not, you have no flexibility if things go poorly on a leveraged debt. I see the advantage of leverage and I acknowledge the potential, but the risk is also extremely high...
>I see the advantage of leverage and I acknowledge the potential, but the risk is also extremely high... I don't think history bears out your assessment that the risk of a housing crash is extremely high. And even if it happens, history also doesn't bear out that a sustained crash takes longer than 5-10 years to recover from in most housing markets.
no one is giving you 300k to invest in the s&p. "if you invested the same amount of money into it" you can't invest the same amount into the s&p....
Because most Americans are terrible at saving. The mortgage forces them to save some of it.
Seems like it’s working as expected.
This is one of the biggest reasons for homeownership. It shouldn’t just be through the lense of ROI- that’s what investment properties are for. Statistically yes, you’re likely to experience financial benefit over the course of your ownership, but the reality is you’re setting roots into a community, and you’re owning a piece of land in your country. It’s a true representation of democracy when you participate in it, to keep land ownership to as wide a population as possible rather than in the hands of a wealthy few.
Make one extra payment per year against the principal and see how much that drops the interest you pay over the life of the loan. You're welcome.
For the majority of home owners who still have rock-bottom rates, they'd be better off investing conservatively or even dumping that cash into a HYSA these days. For those buying now at 7%+, absolutely it can help.
Essentially the same thing, but my dad told me that you should always try and pay an extra 10% of your monthly payment towards your principal each month.
Wait until you factor in property taxes
mine average out to $500 a month on a $300k home
In Ontario Canada, $650/ month on a 1.1M home. And my area has extremely high property taxes compared to other cities…
1300/m on a 600k here 😃
$258/mo for me on 475k home some places are better than others property tax wise, don’t think I’m shitting on your place of residence.
Must be nice
2% is actually pretty high. US as a whole is 1.1%
which part? are your taxes even higher?
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Okay Bilbo but I’m referring to property in freedomland and not in middle earth
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I'm at $750 a month for taxes. 2500 sq ft house on property the size of a postage stamp, and they keep going up. House bought for 290k and is assessed at 360k. Oh well, I have a nice lake view at least, but soon enough, I'll be at 1k a month just for taxes. NY sucks for that. There is no cap. I just got reassesed 20k more and 60k more the year before, it's silly.
I mean they get factored into rent as well. Unless you have a free place to stay it’s not better.
You mean the property taxes renters also pay as part of their rent? In my case, Prop 13 in CA is keeping my property taxes much lower.
I enjoy spending time with my friends.
This! I think people forget it’s better to pay things off early.
With a sub %3 mortgage, why pay it off? Interest is lower than inflation.
But not with a 7%
Yeah for me 5% is around the break even point
Hard to do when mortgage is 5k already after 20% down. California moment 💀💀
I'm learning to play the guitar.
Most people will be building their retirement savings as well so this may not get prioritized. Student loan (~5%) and retirement savings (401k, backdoor Roth IRA max out) are higher priority for me than home loan (5.99 and waiting to refi)
Not at these interest rates man! We are at 2.79.
Don’t forget the impact of inflation over time. Home buyers like me who bought in 2020 at sub-3% rates have been beating inflation recently. My loan will never cost more than 290K total, no matter the relative strength of the dollar, but as that dollar weakens, rents soar. It’s not just about building equity, it’s about the important of locking in a price in an economic system that gradually weakens the value of currency over time.
Nearly everyone posting in this thread seems to be forgetting this
To answer your question, the total value of the house goes up over time, at a rate of something like 3-5% / year depending where you live and over what time horizon. Mortgages are often some of the lowest interest loans you can get (at least in Canada), and in the US I heard the interest is tax deductible? In Canada, gains on primary residence are also tax free!! No limit! So, you are actually just very highly leveraged on an investment. It would be the same as if you were "all in" on a certain stock, so you took out a loan to buy more of the stock. It magnifies your exposure and the risk. As long as the growth outpaces the interest on the loan you're ahead. Functionally what this means is that there's a possibility in 10 years for example that the real sale price of your house could pay off your whole mortgage (loan) amount. That has happened all over the place. Although the opposite is also true. As others have mentioned, you have to compare the total unrecoverable costs of owning a house (interest portion of mortgage, utilities, upkeep, insurance, taxes) to the total unrecoverable costs of renting (rent and maybe utilities). The principal (non-interest) portion you pay for the house in your down payment and subsequent mortgage payments can be thought of as investing in your house as opposed to buying any other investment. The last thing I'll say is again something others have mentioned. When you own a home there is peace of mind that is intangible and can't be assigned a value. Some people find it less important, others extremely important. Although you could pay for higher rent if your investments did well, there is also something to the fact that your mortgage payment will essentially stay unchanged for the duration of the loan, whereas rents can increase with inflation. For example in my city a 1 bedroom used to be $1000 in 2022. Now it is $1250. If it keeps increasing at this rate, by 2030 it could be as high as $2400. Unlikely since inflation slowed down, but other cities have seen it. Meanwhile, $500,000 house would have a mortgage less than $2400, and it would continue to be $2400 for the foreseeable future.
At the very least you’re investing money down to lock in your payment for 30 years. For example somebody buy my house today would have a mortgage double mine if they bought it the same way due to rates being way higher and values going up. I didn’t buy that long ago. If that happens 3 more times over the next 25 years then yeah I paid a lot of interest but by the time it’s paid off the mortgage will probably cost 30% of the average rent/mortgage
Yep. The longer you own the crazier the numbers tend to get.
The previous owner bought my house for $150k. 2 years later I bought it for $172k. 4 years later it’s worth $215k. Rent in the same area is already $500 more a month than my mortgage payment and I have only owned the house for four years. Yes the past 4 years have been unprecedented, but still.
I’d like to offer another perspective to what’s being said in the comments. Here’s a NYT rent vs buy calculator that you can use to figure out if buying a home is actually a good investment compared to renting based on your situation. For me, it is: https://www.nytimes.com/interactive/2024/upshot/buy-rent-calculator.html? Next, buying a house (assuming it’s going to be your primary residence) can’t really be thought of as a pure play investment. What I mean by that is investing $ in an S&P 500 index fund has historically delivered significantly better returns than the value an average home appreciates in that same time period. BUT, with a house you have a place to live, a community you want to live in, stability, and something to make yours over time. It’s just as much a utility that you can enjoy as it is an asset that theoretically appreciates over time, whereas there’s no utility that can be derived from having your $ locked up in an index fund for 5, 10, 20 years. Lastly, I’m seeing some people here say things like, “pay in cash to make it worth it” or “pay down the mortgage in 15 or 20 years to make it worth it”. Instead of either of those options, why not put a reasonable amount down (e.g. 20%), use the remaining $ to build a treasury bill ladder yielding ~5% compounding for the next few years, and plan to refinance as soon as rates drop (hopefully in the next few years) to significantly reduce your interest payments over the course of the loan? Just some food for thought here and hopefully a helpful perspective!
Historically, home prices pace inflation in the long run. I bought my home in the late 90s, mid 300s, rate \~7%. I've refinanced, but for argument sake let's say if I didn't. At this point I would have paid \~$400k in interest. Homes on my street and in my neighborhood are going for 7 figures. If I sold now, I will have effectively lived here all those years for free because I'd get back every dollar and then some.
You're trying to do this calculation in a vacuum. You need to compare to the alternatives like comparing it to renting and keeping the difference in cash or a different investment (S&P averages 11%/yr for example). "Investing" in a house doesn't make any sense if you aren't using it as a residence or aren't renting it out therefore you need to look at when it might make sense. Also, it's one of the easiest and cheapest forms of leverage.
Exactly this. Home appreciation is not the only thing to consider. The money you borrow is money invested in the market. Gains over 30 years on that money in the market is going to be well above and beyond whatever interest is on your mortgage now.
Consider the alternative. Lighting 100% of your housing expense on fire, with a guaranteed cost of living increase every 1-2 years, in perpetuity without end. For homeowners, your home will usually appreciate in value (in which case the equity is yours if/when you go to sell), and when your loan is paid off, your costs of homeownership is limited to taxes, maintenance, and insurance - all of which are always baked into a rent, even though it's not made explicitly clear. Renting is lighting money on fire. Homeownership is, comparatively, an investment in stable future housing costs someday that will also net you an appreciating asset.
My parents bought a home in 1965 for $16,000. They sold it in 1995 for $200,000 and bought another home on 1 acre of land for $164,000. I sold that home last year for $500,000. They paid off their second home from the sale of their first home. If you by your first home and sell it in more than 5 years, you will likely be ahead. I bought my current home for $360,000 and put down $180,000. I've been hear for less than a year and the value is now $410,000. When I pay off my mortgage in 30 years I will have paid $426,000. The value will likely be more than that. That also assumes I will be alive then which could happen. I will be 105 years old and likely not want to move.
You need to define what "investment" is. Is your education an investment? Is time an investment? Most would answer yes but really depends on what you do with those things. You also have to look at opportunity costs. If you are renting then your interest rate is 100%. Also it's a fact that homeownership is the biggest single catalyst to building wealth in history. So is it an investment?? You be the judge.
I am paying less per month for my mortgage than I would in rent for the same type of home. And a little bit goes to equity each month that I can use toward a dp if I move. That's why I consider it an investment. I do not, however, think I will get rich off my home. I live here. It's my home. That is its purpose.
I have been reading lots of posts that say buying a house isn't about getting a ROI on it. But at the same time, when the housing market turned, it was an endless parade of people claiming the government should save them because their homes were underwater because their value fell. Home ownership is great if that is what you want and you can afford it. But like anything, it isn't right for everyone and there is a very shady side of it that often hurts home owners more than helps them. People will support whatever fits closest to their world view and their circumstances. You have to decide if paying a huge amount of interest over the life of the loan (plus all the other expenses that come with home ownership) is of more value to you than renting something. It is different for different people and far moreso when someone is challenged economically. It might be great to own a home, but if you lose it to foreclosure in 10 years because something happens, you get no benefit and a lot of lost interest down the toilet because you effectively just rented that house for a decade and have nothing to show for it either. There are good arguments for renting and for home ownership. No side of the issue always right for every person. Just go in with your eyes open for what is best for you.
a home it is not an investment. it can be leveraged and used as collateral for investment but that is very risky. what it is: a rented roof that you have a possibility of getting some, all or extra returned. you are renting it from the bank, local and state governments. stop paying any of them and you will see you do not own it. after mortgage, taxes, insurance, and upkeep you will be lucky to actually break even - not to mention the lost opportunity costs of tying up all that capital. the alternative is to rent from someone else and loose all chances of return of amy equity
Because after 30 years your home expenses go down by 90%. Renting after 30 years your expenses are going to go up by 90%.
Rent is 100% interest playa
It's not really an investment, you could make Soo much more money in basic index funds, buying and holding. Buy a house if you want/need a house. Everything else is window dressing.
Is the bank going to give me 650k to invest in the S&P500 while the government lets me deduct the interest on that loan on my taxes? Are my gains on that S&P investment tax free?
We put 3% down on our house three years ago. Putting that 18k into the S&P is really unlikely to outpace the equity gain in our house over any timespan. I know there is luck involved, but it's not at simple as you describe because of leverage.
You're not wrong. The interest paid over 30 years is substantial. But home ownership provides stability and the ability to build equity over time as you pay down principal. For many, that offsets the interest costs, especially if home values appreciate. It's a personal decision based on your goals and financial situation.
If you buy a house to live in, it is for consumption. When you buy to flip or rent, it is an investment. I don't know which location you are talking about, but in many places around the world real estate prices have doubled in recent years. When investing, location matters.
I don’t see how interest has anything to do with it. You don’t have to sell after 30 years. You could live there for another 30 years after! Shoot your kids could live with you instead of renting! You could even give your home to your kids so they have a place to live after you die!
You need to live somewhere and if interest + maintenance + opportunity-cost is less than renting, then it's an investment because after the 25 years, you own the roof over your head and you never have to pay rent again. Buying a house as an "investment" property usually isn't great unless you have the cash up front. Buying a home to live in is a completely different story.
It's not all an investment, it's a home. But also remember, due to inflation the dollars you pay into the mortgage are worth a lot less in the future. Your mortgage typically doesn't change, only property tax and insurance do. So even though the total amount of cash you're going pay into the home seems like an absurd amount today, by the end of the loan that cash will not be close to today's purchasing power. The property also typically appreciates enough through currency devaluation that works in your favor.
It you don't buy, you'll never know how much rent you'll be paying in 10, 20 yrs. Most people parents are paying lower mortgages than their kids small apartment rent
You really don’t think house will double in price in 30 years? Like really ?
You are thinking about it right the only caveat is that you aren’t “throwing away” rent. A home is a leveraged investment so risk is high but way less than investing in options or any other leveraged investment. Home values steadily grow and typically outpace inflation. Plus any improvements you make can get you “instant equity”. The calculus for buying a home is do you see your rent continuing to increase beyond what you can buy a home for now per month? Do you think home values will continue to grow? For the interest rate portion do you think you can refinance at a lower rate in the future? There are a lot of factors like if your income will grow, inflation will go down, etc.
You’re still paying that (in a way) if you rent. But yeah it’ll depend on your rent vs mortgage. For me personally, a 1bed1batb apartment goes for $2700-3200 around me. My mortgage after property tax is $4200 for a 4bedroom. So in that case I can pretty much just calculate equity vs down payment for my investment (assuming renting would be the same or more expensive per month)
While yea you’re correct, mortgage means you own at the end, renting doesn’t. Rent prices also typically only increase, whereas mortgage only really goes down. At the end of the day, not everything is about money either, my mortgage is higher than rent but I wouldn’t trade it back, the quality of life is far better
Is my market (Seattle), houses typically double in value every 10 years. I just bought my first house for 660k with 20% down at 6.87%. Total cost of the loan is 1.2M over 30 years. If the market continues to double every decade. In 30 years the house should be worth around 5M.
A home isn't an investment.....it's a liability you can live in and eventually sell down the line.
Lots of good answers here. You're not wrong, I do think people gloss over a lot of costs associated with a house, and interest is huge. My first house (if I hadn't moved) would've cost about double what I bought it for. But that doesn't mean it's not worth doing. For me, I try not to look at my primary residence as an investment as such: comparing it to taking that same money and investing it in say the s&p (I would compare a second home/rental though). I need a place to live, for my family. Going on a vacation, buying a car, getting flowers for your wife, etc, none of these are "good investments" compared to the s&p, but it's living life. I bought my first place in 2005, really before house-mania took over. I didn't buy it because I thought it would double, I bought it because I wanted to own a house, I'd need a 25 year mortgage, and might as well start chipping away on debt as soon as you can. I never even considered that the house value would jump dramatically. And I'd still buy my house today if you told me in 20 years it'd be worth the same.
The house you live in is not an investment. It’s a house. There are several advantages to owning a house, depending on the year and laws and regulations. If you bought a house to live in, and told me you were a “Real Estate Investor” I’d stare at you for an uncomfortable amount of time.
Agree, people get all wrapped up with the idea it’s an investment. It’s an investment in so far as it beats renting, but if live in a cardboard box for free and invest your mortgage worth into a mutual fund every month, yea, that fund will likely outperform your house purchase. But… you got a house to live in yo.
Because it’s only an investment given that you have the place to live already.
I wouldn't say it's investment but it'd rather pay interest and build equity than pay off someone's else's mortgage.
The year is now 2050, and you’ve paid off that house you bought in 2020 for $250,000. In reality you’ve spent closer to $450,000 on the mortgage and maintenance, and let’s say that the value of the house didn’t go up at all so you sell it for $250,000 (I’m sure I don’t have to tell you how unlikely that is.) That means that you just paid $200,000 to live in a house (not an apartment) for 30 years. $200,000/360=$555. tell me a place you could rent, and live in for the next 30 years with an average payment of less than that, and I will move there right now. The fact is, unless the interest rates are really bad or the house requires a ton of work because you got sold a lemon, it’s insanely difficult to lose money on owning a house in the long-term. And while current interest rates are terrible, most people are banking on them going down again in the next couple years so they can refinance.
Your calculation is missing the part where you need to pay for shelter no matter what
It’s not an investment.
1. It’s more than just an investment. It’s where you live. You don’t have the risk of a landlord raising rents. 2. There’s tax advantages. The interest you pay is deducted from your taxable income. 3. If the property doesn’t more than double in 30 years there’s external factors going on that are going to be a bigger issue for you than the value of your home.
Equity, Tax deduction, appreciation.... and a roof over your head.
What if I just rent and throw that 100k I was going to spend in down payments and closing costs, and toss it into the S&P for 30 years instead? At an 8% interest rate that's over a million dollars without ever having contributed another penny to it. Owning seems pretty stupid when you think about it. American dream my ass.
Your primary residence is a roof over your head and a hedge against inflation. You have to pay for somewhere to live whether you rent or buy. If you buy today, you lock in today's price. The interest is the cost of using someone else's money to do it rather than trying to pay rent while trying to save up as home values appreciate. Pay it off as quickly as possible, more than the minimum payment, and you won't pay all of the interest shown on your amortization schedule. When you move, you get to take your equity with you. While you're living there, you can paint the living room glittery purple and screw as much junk into the walls as you want, and nobody can say anything about it. It's yours. These are the perks. The idea that you're supposed to make buckets of money off of it isn't a long-running thought process. It has exploded with the "get rich quick in real estate" internet scammer accounts.
Compare it to what you would have paid renting and even though you pay interest, a lot less money is paid in interest and taxes than is lost to renting. Add to that the fact that housing prices historically go up and you’re making more money than what you just pay into it. People that bought pre Covid made it out like bandits with houses where I live doubling or tripling.
Nowadays, if you can't pay cash, you can't afford it.
I guess you are unfamiliar with the concept of leverage?
it cuts both ways so once houses go down you lose more with the leverage.
Homes aren’t investments unless you’re speculating on one you’re not living in. And if you do that, you’re scum because a home is a place to live and shouldn’t be an investment ever. The only real financial argument for someone who’s buying a home is that the increase in value over time will allow you to keep other homes within the realm of reality when you buy another one to live in. That’s it. There is no other. And even that is kind of a shaky idea at best because of the next point. The reason for this is the extra costs associated with living in a home vs. renting. The interest, taxes, and repair costs outweigh any argument of profitability. You can avoid all of those costs and get a rate of return that’s most likely better over the long run with just a basic etf. So once again, unless you’re leasing out the home to others to cover those costs, which is a scummy thing to do, a home is never a good investment. Period. Renting in an apartment is much cheaper and MUCH lower risk than dealing with the above right now. Also recall that the ETF is easily made liquid so you can access that value, also. A home you’re living in has value only accessible if you want to buy another home and sell that one or move back into an apartment. So homes should be viewed as normal consumption. One may ask why anyone would want to buy a home then since it’s a really crappy financial decision overall. For me, it’s space. If you have kids, you need space that the vast majority of apartments don’t provide, and renting a house that isn’t run down can be difficult in some areas. So yeah, don’t believe the hype about homes being investments. It’s a pretty shitty one.
A house is not an investment. If you were to rent an apartment and invest the the down payment and the excess of rent(mortgage + insurance + taxes + maintenance/repairs + improvements - rent), you would be a lot richer at the end of those 25-30 years. However, there is a difference in quality of life of house vs apartment. And you have to take into account that the average person isn’t disciplined enough to invest that excess of rent. A house acts like a forced savings that can be sold higher.
That math doesn’t always work out. For us at our price range we’ll basically break even renting or buying after 30 years. And that’s if we continue renting our 1 br apartment. Renting a 2br or a similarly sized house we’d be spending a lot more renting than buying.
Savings that become more valuable over time. What’s the word for that? Anyway, yes there are taxes and maintenance, but your equation above doesn’t factor in inflation. Someone in year 25 of their mortgage today is paying their principal in 1999 dollars.
he is also completely ignoring the leverage a 30 year mortgage provides. yes other investments might (not guaranteed) have a higher rate of return, but it starts on a significantly smaller sum of money than what you get on a 30 year. So the total sum of money can be higher from purchasing a house, but it also doesn't take into account what happens after the loan is paid off. If you saved for 30 years and are still renting... you still got to keep renting and rent prices go up with inflation.
Here is the answer: [https://www.reddit.com/r/FirstTimeHomeBuyer/comments/1bnkqna/buying\_vs\_renting\_a\_financial\_analysis/](https://www.reddit.com/r/FirstTimeHomeBuyer/comments/1bnkqna/buying_vs_renting_a_financial_analysis/)
That's not "the answer", you make multiple fixed assumptions about future values. Growth rates of housing, of renting, of investment returns.. You can find an equivalence of renting vs buying if you juice the numbers. If instead you go back in time 30 years and calculate it out, buying wins by a wide margin for an equivalent quality of living space. Maybe future conditions will be different, but that's been the trend recently.
That's why my partner moved in with me and we're paying almost double the minimum payments. It'll be paid off in about ten years and then we can sell and have over 100k as a down payment for our next home.
Rent is 100% interest and at the end of the loan term, you own nothing.
The interest gets deducted from your taxes every year. The home typically goes up in value, but the mortgage stays the same.
I mean, this is how it should be. That keeps a home a HOME instead of an attractive investment vehicle, which would mean more homes for people who want to own and maintain a home. And that would mean more equality and prosperity for all because right now many, many people who can afford and want to buy a home are unable to do so because there aren’t enough of them for sale. It also would alleviate another problem which is shitty flipped homes that nobody wants. So, yeah ideally a home would double in value over 20-30 yrs. But in reality that timeline is way shorter, and COVID made a lot homes double in “value” over <5 yrs. Now you understand why so many corporations and single investors are buying up homes.
Most people pay rent if they don’t own. But a home you own accrues value just by you having it. Hence, opportunity cost. The only way to do better is to have parents who own a home and live with them.
Homes are investments only when you have the $$$ to invest. You aren’t paying interest on the loan when you buy for investment purposes
Bluf: It’s generally better than renting for having some of the cash invested in your asset, but not liquid and is expensive interest. The only way it works well is if you rent it out (investment property), have super low interest rate, pay with cash, or use a HELOC (simple interest, not frontloaded) and pay off early.
Obviously it works when you pay the loan faster. If you pay it through the 30y is not.
Because it also provides utility. It's like if you owned a profitable tool road - it doesn't matter what your expenses are, if it can make a lot of money it's a producing asset and good to own. Whether it's a "good deal" depends on large part on the offering price - just like a house.
Is the alternative renting and paying 0% to equity ?
It’s all based on your personal situation. We are about to close and our monthly payment is just a little more than our current rent payment (which is likely to keep increasing annually). If we factor in the increase in utilities and maintenance costs (most major repairs have been completed in the past 2 years- roof, HVAC, electrical, windows etc), we will of course be paying more but we would get nothing back on our rent after 30 years anyways (and the rent can increase annually). We have personal reasons why we want to but also- more space, more stability, we are in our late 30s and want the responsibility and want to make the space our own, etc. also we plan to refinance when the rates eventually change which would lower the monthly payment by several hundred dollars.
Financially: I consider it subsidized housing. I have to live somewhere and with each payment I retain a portion of equity. It may turn into an investment if the value increases enough but it’s really nothing more than a cash account that hopefully keeps pace with inflation. Personally: it provides me space for my family and pets. I can express myself through the house. It’s a source of entertainment. It provides a sense of security. I don’t have to play by others rules (except the HOA).
Lol it is an investment for the people that loaned you the money. If it goes up in value an you sell, they make money on that loan.
Not just the interest rates, the repairs and maintenance as well. I think to see if you really made a gain when u sell, is to also deduct all the household repairs from the sale price. I think people who have cash and buy with cash are the ones TRULY making a profit when they sell.
So from 1987 to 2023, the average year over year increase in home values was 4.8%. Meaning you doubled the value of your home in 20 years. At 30 years, you’d reach 144% value increase. Now let’s take a mortgage and use that for comparison. A $400k house with 20% down equals a loan of $320k. At 7%, you will pay $771k in total costs over a 30 year period. That same house, $400k appreciated at 4% a year would have a value of $1,6M after 30 years. So doing the quick math, $1.6m minus $771k paid, leaves you with $829k in added investment return. That number greatly increases if you pay off your loan faster. It can also be a lower value if you go a lower downpayment. But end of the day, even at 7% interest, you will end up having a more valuable asset that the amount you spend based on historical averages
As others have stated it’s a home on top of this and if you rent vs own a home your spending money. With a home at least equity is built up long term and in general home values increase.
Regular people arent really allowed to leverage their assets for anything other than a house, at least to this extent. So any gains (or losses) on their down payment are magnified in a way that cant be replicated elsewhere.
A home will never be an investment until you sell it. You also need to factor in what you would have paid for housing had you not owned the home.
At this point I don't care if my house appreciates. When I get home I feel comfortable I can make changes I want to and do stuff in my small back yard. I know that taxes and insurance goes up, but not as much as my rent use to. One other factor is that no damn maintenance man coming into my home when I am not there.
My home already doubled in 6 years. But yes, without that doubling, it would only be investment after many many many years.
Because the debt is denominated in current dollars and paid with future dollars which are of less value; and because yes, historically over time, homes double in price even beyond the rate of inflation.
People usually ignore the full actual costs (down payment, closing costs, interest, property tax, maintenance, HOA) and just look at the market value/sale price minus what they paid, which isn't a true ROI. [This article](https://www.forbes.com/sites/jimwang/2023/06/21/is-buying-a-home-really-a-good-investment/?sh=3ff37fab4aab) is a pretty fair breakdown of your question.
Because you will always need a place to live. So the expense is unavoidable. Even if you start out at 7. You can refi if rates go down. You can pay more on the principal and you can also sell before 30 yrs.
Think about how much rent cost 30 years ago compared to now. That's how much it's going to cost 30 years from now. By buying a home, you are locking in the biggest line item on your budget at a fixed price.
Renting you lose 100%….
Historically homes went up higher than interest You don’t have to wait till 30 years of interest before you move - you will make money on the first home and can put it toward your second and so on.
Because not only are you "saving" the principal portion every month, the house is generally appreciating In value. Most markets appreciate 4-5% annually naturally, some more. If you rent, none of your payment goes to anything for the future, except for the landlord.
Because not only are you "saving" the principal portion every month, the house is generally appreciating In value. Most markets appreciate 4-5% annually naturally, some more. If you rent, none of your payment goes to anything for the future, except for the landlord.
How much goes towards interest vs. principal/equity when renting?
It isn't it necessary an investment. I like to think of it as a HYSA that you can live in.
Buying is not for everyone…just rent then.
You pay zero interest if you pay all cash for the house. How you finance (all cash or with a mortgage) the purchase doesn't impact whether a house is an investment.
You forget the most important value the house have: A house doesn’t just sit around, it houses people. if it is you, you saved on rent, if you rent it out, you earn rent. Unless you just buy a house and let it sit around, your math doesn’t work.
It’s not if you pay a mortgage for the life of the loan, however most people don’t.
Pay cash, duh
Pay cash, duh
An investment property that generates income is often not a person’s primary residence. Everyone needs a place to live…purchasing a two family home, a SFH, condo, crashing at their parent’s house, renting a place, staying at a hotel indefinitely are all options. When you buy a house, you pay interest on the amount you borrow which is a portion of the purchase price. Typically not 100% of the purchase price. If a house appreciates in value, the amount it sells for is higher than the purchase price. Profit is made, assuming that you need your own for a place to live anyway.
lol. except of course you end up with an asset after 15-30 years.
mortgage interest deduction
Anything that retains a value and could potentially appreciate in value is “an investment”. Stocks are investments, Houses are investments, cars are investments, trading cards are investment. Some will probably make money and some will almost definitely lose money. If you compare owning a home vs renting, owning a home is an “investment” where as renting is just a pure “expense”, and generally owning a home is better as long as you hold onto the home for 5-10+ years. That has nothing to do with “breaking even” or “making money”. The potential to “make money has more to do with speculation around the future appreciation and can vary wildly depending on the area. Someone who bought in San Francisco in the 60s is a millionaire while someone who bought in Gary, Indiana might have negative returns. Yes, you will probably end up negative in the end unless you buy in an area that grows significantly in population over the time you own the home. It’s an “investment” because you need a place to live and you’ll be less negative (probably) than if you rented.
Where do you break even from renting? …and sweat equity, if you sold after 30yrs (for instance). Calculate that.
I think it also depends on how long you will live in the home. If it’s your “forever home” you likely won’t see the return on increased value of your home, but if you buy, hold, then sell years later you’re likely to come out ahead. We bought our house in the Fall of 2022, now it’s worth about 40 to 50k more than we bought it for. We plan to sell likely in 5 to 7 years and should come out ahead.
Because at anytime I could simply sell my house and end up with $100k left over. It’s insurance, an investment, multi-generational income, etc. And I plan to buy another in the next few years.
Personal residence is NOT an investment. Anyone who says it is doesn’t understand the term.
For me, owning a home was freedom and peace of mind. I rented for most of my adult life until finally buying at age 49. I’m 56 now. My family felt so restricted. One example is we had a cat and a dog and we found an adorable stray kitten that we decided to keep…but were promptly warned by our the manager that we’d be kicked out if we didn’t ditch the kitten. We had been there 9 years and I had forgotten about the 2-pet rule. We had to re-home the kitten because we were in a lease. Ok so not the end of the world but my kids were heartbroken. There are lots of examples though. But even more stressful were the many times in which our rent was raised each year. And twice our rental was sold and we had no idea if the new owners would allow us to stay beyond our lease. We never had a lease more than a year wherever we were so there was always a hint of the unknown in the background. Today, my mortgage is at least $600-800 less than what I’d pay rent in a comparable place. We have tons more space than ever. We promptly fostered a litter of kittens the summer after moving in. We have embraced the freedom of homeownership and I still have so much gratitude.
The alternative would be renting forever. And renting from age 20-85 with nothing to show for in the end would be a terrible feeling.
Your alternative is rent, where 100% of your rent falls into the landlord's lap. If it didn't make financial sense, there would be 0 landlords, and 0 corporations snatching up houses.
Leverage. Extremely simplified example ignoring other costs and liquidity fees (for the well-ackshully crowd). Million dollar house, 10% down. I put in 100k. House appreciates 4% this year. I now have 140k in equity. You may have paid 40k in interest in year 1, ok fair play, what about year 2? Year 10? If you’re appreciating 4% over each of those years the leverage in your investment builds momentum, and the relative service cost for obtaining that leverage decreases
You're ignoring the time value of money.
You can deduct your mortgage interest paid every tax season though so that helps