Comments on: Rent a Home vs. Buy a Home

By: Mike

Mike — Mon, 27 Jul 2009 01:41:12 +0000

MyJourney: I’m inclined to think that the home a person owns should be included when considering one’s asset allocation. Though that’s a great question, and not one I’ve thought too much about frankly.

Anyone else with thoughts on the matter?

By: Punch My Ticket

Punch My Ticket — Sun, 26 Jul 2009 22:16:18 +0000

@ My Journey,

To me, REITs make sense for renters and the truly wealthy only ie. not Joe Average. Renters should use them to hedge their bets, the wealthy should use them because they arent very correlated to other asset classes. Joe Average, who already has a house valued at 5 times his net worth, is to exposed to real estate already to be buying more.

By: My Journey

My Journey — Fri, 24 Jul 2009 19:45:04 +0000

OI,

I think the problem comes in when people use it as part of their exposure to real estate in a balanced asset allocation. Just because you own a primary residence doesn’t mean you shouldn’t have exposure to other forms of real estate (e.g. REITs).

Thoughts?

By: JerryB

JerryB — Fri, 24 Jul 2009 04:12:40 +0000

Currently, I couldn’t rent a comparable home for what my nominal Mortgage(P&I) + taxes + insurance costs me. When my home is paid off, my “rent” will drop to the cost of taxes + insurance. I’m in my 18th year of home ownership and really haven’t regretted a moment of it.
Do I expect to make some huge profit from selling my home at some point in the future? Not really, maybe my heirs will.

By: The Weakonomist

The Weakonomist — Thu, 23 Jul 2009 20:33:13 +0000

It’s simply a matter of a difference of definitions for the same term. And a dictionary definition doesn’t mean much. In truth a home is an investment but the PF community has said they are not to enourage people to not to treat the house like an investment.

I certainly won’t treat it like one when I buy one someday. But it might still be one.

By: Rob Bennett

Rob Bennett — Thu, 23 Jul 2009 19:35:27 +0000

My belief is that a home purchase is primarily an act of consumption, but that there are also some investment benefits attached to it. The Home Selling Industry exaggerates these benefits. But I view the claim that they do exist at all as going too far.

The payoff from buying a home lies in the fact that:

At some point, market rent prices will grow to exceed your total home-ownership-related cash outflows (mortgage payment + property taxes + maintenance costs), and
Eventually, the mortgage payment will disappear entirely, thereby making your cash outflows significantly less than what you’d be paying in rent at that point.

I think that some might argue that these benefits are built into the price paid for the home. If the home buying market were “efficient,” it would seem to me that they would be.

Personally, I don’t believe in efficient markets. I think that humans do all kinds of nutso things when buying just about anything they buy and that trying to prove these points with numbers often just leads to more confusion (although using numbers can help make sense out of things so long as all are careful not to take the numbers too seriously).

Rob

By: Rick Francis

Rick Francis — Thu, 23 Jul 2009 16:38:49 +0000

I would agree that a house is always an investment- it’s just important to remember that it isn’t always a good investment. Also to make a fair comparison you should calculate investing the costs saved for renting- such as repairs and the down payment. If those costs are large enough renting could still beat out owning a home even after you pay off the mortgage.

-Rick Francis

By: Miranda

Miranda — Thu, 23 Jul 2009 15:17:36 +0000

My feelings aren’t hurt At any rate, you do make a good point, and we should all be careful about how we throw words around.

By: Mike

Mike — Thu, 23 Jul 2009 15:06:18 +0000

Hi Miranda.

I wasn’t arguing with the point of your post (or other posts making the same claim). I’m in complete agreement that investors shouldn’t expect double-digit annual increases in home value. So thank you for spreading that message.

And I agree that homes have a value beyond the monetary one.

I just think that it’s important to include the monetary value–particularly, the one that will be realized even if you never sell the home.

By: Miranda

Miranda — Thu, 23 Jul 2009 15:02:48 +0000

I’m one of those “silly” folks It’s not that I don’t think a home can’t be an investment, I just think that if you expect to be making some sort of big bucks on a primary residence, you are in for disappointment, especially if you have a long-term mortgage. Yes, you can get a monetary benefit in the end if you sell. However, if I were to keep my 30-year mortgage til the end, and then sell, I would have paid more in interest than I am likely to get back, even with my home appreciating in value. But, I would have a nice chunk of cash. In that way, that I get some cash, I suppose it is an investment. But I wouldn’t be getting a profit. At any rate, a home has other value than just monetary. The emotional benefits should also be included.