homes aren’t investments

" But if you’re genuinely on the fence about whether to buy or not, then looking at mortgage rates isn’t going to be nearly as useful as looking at local rental rates, and their possible future course."

Yet again, buying naysayers conveniently ignore the fact that the biggest (and most important) benefit to buying over renting is that eventually, your home will be paid off, and your mortgage will DISAPPEAR. Your "comparable" rent will only go up.

"Yet again, buying naysayers conveniently ignore the fact that the biggest (and most important) benefit to buying over renting is that eventually, your home will be paid off, and your mortgage will DISAPPEAR."

LMAO. The average time people remain in their homes is 7 years. Nowhere near "paying off your home." It takes at least that time for the mortgage interest deduction to cover the transaction costs.

The fact is, most people are paying the bank, the government, and the real-estate industry for the benefits of nothing.

People tend to downplay tax savings (RE tax, mortgage interest, maintenance) for investment props, but not much is said about depreciating the f-cker. You can go beyond 25k loss limit if you provide "extra" services, and if you read the code; it's very doable.

Assuming your investment property is within the city, what's stopping you from moving and living there 2 out of last 5 years so you can get the 500k/250k capital gains tax exclusion when you choose to sell?

Buy now or be priced out forever.

trite

buying and selling also costs a lot of money to do, you cant discount that. And you should consider opportunity costs as well in any buy vs rent equation as buying puts a good chunk of dollars into the asset you are about to buy.

> Assuming your investment property is within the city

The post is about homes, not houses... as in owner-occupied.

Silly post, UD. You know all that matters is the tax deduction.

Good post nyc10022, I agree completely.

Hey digs, you in the market to buy yet? Looking forward to having you as an UWS neighbor.

JuiceMan,

nyc10022, did not contribute too this thread.

> JuiceMan, nyc10022, did not contribute too this thread

You don't really believe that do you mutombonyc?

JM,

Yes, I do believe that. Where is nyc10022 on this thread if she did contribute too this thread?

mutombo, he's the OP. You must have been wondering where your secret crush had disappeared to - that can be tough.

bjw2103,

How do you know "he's" the OP. Afterall, you do follow nyc10022 around like a child trying to be her friend, nyc10022, don't want to be your friend as she stated numerous times.

JuiceMan agrees = time to reconsider.

unfortunately no...cant afford what I would need to buy to grow into..classic 6s are what, 1.6-2M or so minimum...umm yea, I need way more business to be able to afford that

UD, rent! The Beaumont, for instance. Nice classic apartments, much cheaper than buying.

Shiller, himself, believes that expecting to get rich off of real estate is an odd phenomenon:
http://theapplepeeled.com/buyers/up-close-with-robert-shiller-part-2/

So is getting rich on tulips, and on dot.com companies with plenty of dots and plenty of coms, but with no earnings.

Homes are very analogous to tulips. Homes last decades and decades and you can even borrow on them on a 30 year basis. Tulips last a week.

Homes are very analogous to dot.com companies. People have lived in homes since moving out of caves. Dot.com companies ... well, the ARPANET was invented at the end of the 1960s and Sandra Bullock starred in The Net in 1995.

mutombo, lovely insight. I don't care if it's a he or she - would you rather I refer to him as an "it"? You are most definitely an it, however.

He's the It Girl!

"Yes, I do believe that. Where is nyc10022 on this thread if she did contribute too this thread?"

nyc10022 is everywhere mutumbo, even where you don't expect him

bjw2103,

Stay classy.

love that for once there's a clear explanation of how rates affect the buyer. the pedaling of the NAR and homebuilders making buyers believe that low rates are an advantage to them succeed in convincing many 1st time home buyers into buying. low rates benefit the seller, not the buyer. the buyer needs to lock in the lowest principal possible and down and refi down the road into lower rates.

as an investment, RE is a play on rates falling, not rising. but you can make that bet with much lower transaction costs on the market (hence not need to get into RE to make that bet at all).

also, RE at it's core is an intergenerational transfer, so by definition, if the previous generation made a bounty on RE chances are it's not a good deal for the following generation. young people wake up!!! wish parents would teach these vary basics to their kids intead of telling them that they are wasting money on rent.

This particular speech act -- homes aren't investments -- is fascinating. The exact same phrase can induce exactly opposite behavior.

Some people, when they hear this, think that it is admonishing you to disregard or minimize consideration of future price appreciation in your decision to buy. In this sense, it is an inducement to conservatively evaluate the financials of a home purchase (as an investment, btw).

However, you can use the exact same phrase to induce the opposite behavior. Homes aren't investments; therefore, you shouldn't evaluate them as cognitive financial decisions. They are emotional decisions, not investments, that are not explainable by any valuation or financial metric. In this sense, the phrase inspires less-conservative or non-evaluation of the financial aspects of homeownership, which leads -- the exact opposite as above.

great point skinny! much better would be something of the sort:

"housing costs is the 2nd or 3rd biggest ticket item in most households, so make sure you get it right, especially avoid accepting higher prices than you should and avoid believing it's the road to riches."

Buying is a great investment...just not recently. The credit bubble had everything to do with that. Not all investments are equity investments. Owning is a lot like buying TIPS.

> Buying is a great investment...just not recently

Actually, its not true long-term either. Shiller calculated the long term return, and its barely above zero real return.

Americans just think so because the biggest bubble in our history is in recent memory.

Averages aren't useful in this matter. What is the temp on mercury on average?

> Averages aren't useful in this matter

Sure they are...

if nothing else, to contradict the false claim that owner occupied RE is a good investment.

If it were, it would have a decent CAGR...

> Buying is a great investment...just not recently
Actually, its not true long-term either. Shiller calculated the long term return, and its barely above zero real return.
Americans just think so because the biggest bubble in our history is in recent memory.

==========

precisely, even when good data exists, the finance profession doesn't bother and only considers post WWII dynamics. there's no excuse for that other than mental laziness and complacency. it's pretty much like checking how well baby boomers did when in great part, they did well cause of the baby boom. you really need to look into normal demographic settings to determine normal RE returns. that baby boom is not replicating any time soon.

it's even worse when the pedaling uses only the previous generation when talking about intergenerational transfers types of assets. whether tremendously disingenuous or ignorant? i have no idea. but the damage is the same. there's no such a thing as "i did so well with that asset class, you son, should do it too" magic formulas when the receiver belongs to the next cohort.

Bingo, admin.

Its amazing how the lack of transparency in residential RE has allowed such cherry picking, and dishonesty.

Somewhereelse, you just dont get it. No one buys once in 1909 and sells in 2009. You only need to look at the last 20 years to see a great real estate entry point. There is a great book on the market, called Unexpected Returns. It basically shows that 20-year equity returns are highly entry point dependent...dependent on the P/E of normalized EPS. The same could be said of real estate. How you argue that a 100 year data set is indicative of one persons real lifecycle...I just dont get it. The average return of the stock market from the 1960s peak to the 1982 trough was 0%. Doesnt really tell you anything. However, buying at 7x normalized EPS in 1982 proved fantastic. Buying at 40x normalized eps in 1999 proven terrible.

Rhino,

You're an idiot. Shiller went back 400 years (you know I already posted that article) and the return sucks. Sure, you can time it perfect and make some $ buying and selling a house, but who sold in 2007? Not you.

Do you think anyone put all their money in the stock market in the late '60's and pulled it out in 1982? Of course not dumbass. People put $ in every year. All the time. You're all equity analyst, and no real world.

Rhino thanks for leaving out the epithets on your 1000th identical lesson on investing.

Great response, renter.

What do you know, other that what you read in the library?

Nothing.

Ok - so back to the debate ... because there is a valid debate, here. There's something to be said for housing prices remaining flat over looooong periods of time when excluding inflation. Over these loooong periods, therefore, housing prices have tracked inflation (which is why many people argue today that real estate is as good an inflation hedge as any).

That said, the point that Rhino made is that over shorter time-frames (even extended to multi-decade periods), there is lots of money to be made; same goes in the stock market and most other asset classes. The notion that there are good entry points and good exit points basically means there are times you can buy low and sell high ... market timing, really, by definition (whether it's over a period of a week or a decade).

Let's not poopoo this notion, because that's what asset management/professional investment is: making buy and sell decisions at opportune times. The question I ask myself is: should the average home owner go the "investment" route? This is akin to individuals managing their own stock or retirement portfolios, when solid research indicates that individual investors consistently under-perform institutional investors.

I think this is why Shiller is trying to help individual homeowners and give them some way to hedge their personal real estate exposures: http://theapplepeeled.com/economics/up-close-with-robert-shiller-part-1/ ... because they're at a natural disadvantage.

Oh look meathead is fighting with multiple people. ... When do we get the epithets? Ps I thought I was blocked ... What's it like to be so personally weak?

A huge disadvantage if they listen to rhino....

Rhino hasn't had an original thought in 6 months. But plenty of rage

Even an investment that rises simply at the level of inflation is an investment. The investment in a home protects you from rent inflation. Depending on the valuation, you are either underpaying or overpaying for that protection. Similarly, depending on what you pay for the stock market, you are underpaying or overpaying for the long term expected growth of earnings of 6% (3% real growth, 3% inflation).

Its not market timing to do the math and notice there are clearly times when owning is much cheaper than renting, with all the standard assumptions about down payment and tax deductions.

Yes, Rhino, that's why I pointed out the argument that many consider real estate as a good inflation hedge. I don't think we're questioning the definition of investment.

And not that wikipedia is the end-all-be-all in terms of definitions, but market timing is, in fact, defined as: "the strategy of making buy or sell decisions ... by attempting to predict future market price movements."

So, again, I'm not criticizing the market timing thing; that was not my intent ... rather to highlight it as one of two valid camps: market timing vs efficient market theory.

Its only on this board that its debated whether or not real estate is an investment. Its a pretty well accepted asset class. Earnings increase more over the long term than rents do. I get that. This doesnt change the fact that real estate is an investment.

Efficient market theory is a bunch of bull. I dont see how anyone can argue that people are rational.

I agree

"I forgot to keep you blocked you little cunt."

Classy Rhino. Why don't you just block everyone and stay the hell off this board? Real estate is not an investment, get over it. Even your BFF steve agrees with that (so much for 99%).

I do agree with Juicy that we can do away with the cunt thing. Also my personal preference, but that's an aside.

Owner-occupied residential real estate does not meet the standard definition of an "investment," which is the use of money to make more money.

http://www.investorwords.com/2599/investment.html

HOWEVER, under asset allocation theory owner-occupied residential real estate can be deemed one asset class that one "invests" in. In this case, one is "investing" - putting money into - in a prepaid expense (rent), with the hope that future market rents will rise with respect to the prepaid expense. Therefore, one "makes" money by prepaying the expense to increase future cash flow. It is not unlike factoring in business: selling a stream of receivables at a discount to receive the cash today, except it is from the factor's side.

So let us say it's not a classical "investment," but an asset allocation choice.

And yes, efficient market theory is stupid.

Good summary Steve. At a high enough cap rate the prepaid expense can be very accretive to bottom line esp if the diff is invested classicly. Hahah.

Juicy stop trying to get steve to like you by pointing out our difference in terms.

"Juicy stop trying to get steve to like you by pointing out our difference in terms."

steve already likes me so the only thing I need to "try" and do is point out your errors, which is pretty easy.

steve should be embarrassed that he associates with a classless idiot like Rhino, he is above that.

"steve already likes me"

Well, I find you entertaining and likable on a personal anonymous post sort of level and I'm very happy your wife had a Juicelet, but I don't think you understand real estate or finance or economics or accounting.

But then why should you, as you're a dentist, and the world needs dentists, too!

Wow - like a junior high playground!

As long as you sell and buy them for less or more money, take tax deductions and depreciate them in various ways, they are investments.

Well, rhino IS a 14 year old, trying to be like us adults, so I don't expect much.

rhino 'There is a great book on the market, called Unexpected Returns'

is that on your amazon recommended list? i keep waiting for the link to it. these snippets of your knowledge are so titillating that I'm frothing at the thought of learning more from the source of all your knowledge.

please don't disappoint - its almost christmas

"Juicelet"

I like that. Thanks steve.

"but I don't think you understand real estate or finance or economics or accounting."

LMAO. You are right, I don't understand YOUR real estate, finance, economics, or accounting because it is different than the real thing!

You're right, Juicy: my experience is based on a first-rate education, years working a Ernst & Young, Bank of America, and PriceWaterhouseCoopers. Nothing at all like the real thing!

Without denists, there wouldnt be 15%-occupied condos in Long Island City. They'd be even less occupied.

If any of the peanut gallery read books, they wouldnt be so woefully ignorant of any reasonable school of financial thought or practice.

"years working a Ernst & Young, Bank of America, and PriceWaterhouseCoopers."

Data mapping doesn't count steve

I'd rather listen to someone who puts his $ where his mouth is, then some academic bore like you.

"Data mapping doesn't count steve"

I don't know, it wasn't my job & the only time I ever did it was in college. In the days of Abacus (which at the time stood for "A Bank of America Computer System." For real!).

Sorry yet again, Juicy.

Ok so we all know my point - cap rates. I beat to death. I struggle with Juicy's agenda. Is it to demonstrate again and again the stubborn ignorance of markets typified by a top tick purpose in a fringe neighborhood?

I'm an academic bore? Monkeyboy, I trade for a living. If I could short Manhattan condos, I would. I have tried to find the vehicle. I have started posts to find the vehicle. It doesnt exist. I found a Manhattan mortgage REIT called NYMT. It trades at a double digit yield@! That ought to tell you something. However, I'll guess that it doesnt, as you are not smart enough to see the implication.

"It trades at a double digit yield@!"

Could mean that it's oversold. I wish I had bought a couple of $k of BAC when it was at $4.

I havent done a lot of work on it Steve, but it may be. I'd rather own Manhattan mortgage debt at a 14% yield than a coop at a 4% yield...I know that. But seriously, I havent done the work to recommend the stock, and my focus is oil & gas. Suffice to say, its one more reason to think Manhattan real estate remains mispriced.

You trade for a living? Huh, you told me in another post you were a analyst. Funny. Don't know how to short manhattan RE? It's called buying CDS on a NYC RE company. Of course they don't take the $10.36 cents in your broke ass brokerage account. Then again, we all knew we weren't talking to a player.

Oh now I remember you...you're the pion broker. I suppose you are a 'player'. Sorry, I use trader/analyst pretty interchangably. Yes, and in the past I have been a publishing sellside analyst. Aw broker, you are so cute. Really CDS? So smart. Right because thats such a perfect way to bet that prices in the Brompton and the Lucida will fall. If you know of a pure NY residential REIT then please share. Or go back to the phones and try to sell your grandma some stock.

Haha....whats worse a stock broker or a real estate broker? Thats one for the ages. Or maybe a car salesman.

Reality check:

http://www.cnbc.com/id/34110130

Steve...dont fall into the national news trap. The reality here in NY is finance is still weak and may never be as strong as it was...and rents continue to fall. Bah hahahaha.

You use "trader/analyst pretty interchangably"? Interesting, because those jobs couldn't be any different. I'm guessing you're unemployed, or 14.

And you don't need to buy CDS on a NYC reit, you could buy it on someone like macklowe. Just ask your private banker.....oh yeah. I forgot. You're 14. Some of us here actually have real jobs.

What is your sense of what an analyst at a hedge fund does? Seriously. Do you have a sense of how a hedge fund works? Tell us what analysts at hedge funds do. Tell us how they are typically compensated. I want to hear how a fuckwad broker imagines it.

They're my clients, retard. Of course I know how they are compensated. I get their bonuses. This is why I know you're 14, because a analyst and a trader are light years away from each other. You are neither. You're a child. No one respects you. If your research was any good, you're have your own shop. I run my own business. My clients are mine. You keep sucking on the teat of some crap company. I vacation whenever I want. Bottom of the food chain huh? Keep telling yourself that....

No one respects me? Despite my lack of civility to the morons on this board, in almost every post I chime in on, someone compliments my points or information. Can you site on compliment made you? I dont think so.

Isnt it time to start cold calling the west coast you piece of shit?

Oh, PC, this is getting entirely too personal! I have my own company too - yet I rely on the kindness of "the teat of some crap company" that's my client. We are all interrelated (except LICComment - a real Billygoat Gruff sort of personality).

There is a huge difference, however, between an analyst and a trader. B & A personality types. What's the skoop, Rino?

How come no one is complimenting you here about your incessant cap rates posting? The silence says a lot.

If you buy and sell stock on a short time table, call it a week to six months, and you do both analytical and fundamental work...I'd call you a prop trader...or a desk analyst. Thats the scoop. Its really a function of time horizon. If you work at a fund and take long term positions of one year or more, and dont focus on trading in and out and around your positions, then you are the type of hedge fund analyst that you are thinking of.

I meant technical and fundamental work...not analytical and fundamental.

How many compliments to your none do I need to win this point. I think Steve would say he respects my perspective. Steve, have you seen anything interesting out of positivecarry, or not really? Be honest.

Equity traders have no clue about munis. That's why they come to me. Bucket shop? You wish. If anyone EVER let you trade, you wouldn't be able to post on this board between the hours of 8AM to 5PM. Try getting a real trader on the phone during market hours. Let me know how that goes for you. You post all day, so you either work for yourself like me (which we know you don't) or you're a 14 year old bitch. My money's on the latter.

So let me get this straight, hedge fund analyst or trader beats broker. And "gay translating accountant" beats meatheaded hedge fund analyst or trader with CFA? Is that about right?

Because I did see on streeteasy where a "gay translating accountant" caused Rhino86 to break. Its always nice to see a meathead destroyed.

So youre a muni broker. Even better. You really are pond scum. Like I said if you are so sure I am 14 let's meet and I'll slap you in your face.

I don't know PC too well, but the 14-year old bitch comment is really unwarranted.

But if PC's attitude is indicative of a day trader's, then it would seem to be indicative of an overinflated ego. Traders don't do useful work like, say, dentists.

I'm 35. I turn 36 this month. PC is a twenty something muni broker
who learned some terms from barrons. I wish there were a way to
short manhattan condos. There isn't. There aren't reits that are solely
residential and solely manhattan. So there isn't such a company to
short it's debt thru cds. This is despite the best efforts
and rants from a pond scum muni broker.

Rhino86
17 minutes ago
ignore this person
report abuse
How many compliments to your none do I need to win this point. I think Steve would say he respects my perspective. Steve, have you seen anything interesting out of positivecarry, or not really? Be honest.

What would you care what a "gay translating accountant" has to say? Shouldn't you be threatening him with violence too?

We've been through that once, hfs.

I think we're better off without all the personal attacks, unless the target is Billygoat Gruff.

And you do have to be pretty smart to do my job. Very long learning curve.

You're 3 years older than me, on your 10th analyst job because you suck at what you do. Bitter renter indeed.

Why is my 14 year old comment unwarranted? Am I asking to meet up so he can slap me like a bitch would? No. He's the gym hero

I'm off to Bar Masa.

Rhino, don't forget to ask your boss if it's OK to hand in your report on Monday because you spent all day asking a guy on a messageboard to meet you so you could fight him.

If I suck, how much are you willing to wager than I can document a higher net worth than you? Steve can be the independent auditor.

How much pion broker? Slink away...typical broker. No balls. Call me
14 but clearly for show. What's worse a 14 year old posing as an adult or an adult
calling someone out as 14 to sound tough on a board. The irony is I'm a pretty nice guy. I just like playing Howard stern on this board. Ha you broker piece of shit.

How did I get involved in this? Why don't you two just see who can piss further into the wind. I have a few grand to make before the end of the day.

What's the discussion here about.

If you refuse to bet simply do not address or refer to me ever again.

Rhino86
about 3 hours ago
ignore this person
report abuse If you refuse to bet simply do not address or refer to me ever again.

Like my buddy columbiacounty says, you don't get to make the rules.