Long Term Return on Owning is 0%

dealboy: "When you buy at the right time, owning is cheaper than renting, for the life of the property." Agreed, but the right time comes but rarely. In Manhattan, we haven't been in the right time since 2000 at the latest.

Post87, correct, I'm not arguing that.
Anyone buying at the top of a 20 year bull run is a fool.

This whole "opportunity cost of the downpayment" is trivial.
The guy who bought a brownstone in 1995 for $200k put down $40k.
Now, the apt is worth $5 million, and that $40k is a rounding error.
It's laughable to think a typical investor would turn $40k into $5 million in the stock market.
Not even close.

p87, for the lifetime of your loan? Don't think so. How do you think people that bought 15 years ago feel about today's rents?

dopeboy, you are an imbecile---there is no 200k townhouse bot in 1995 that today trades 5mm
and your cluelessness about leverage and investments generally is obvious

you are laughable, not worth engaging beyond this brief comment

Post87deflation: There will ALWAYS be market inefficiencies that one can take advantage of. For instance, because I signed a contract on my place early, it has appreciated about 40% (based on sales of other units in the building) before even closing.

I also am not buying the logic implied in this thread that, just because the long term return on owning is 0% nationwide, it must be 0% in NYC (especially in manhattan). Being that it's one of the most desirable cities to live, and the space is severely limited, it makes sense that it could go up faster than inflation. Considering the invention of the skyscraper, I can't imagine real property value in Manhattan only went up with inflation over the past 150 years.

"It's laughable to think a typical investor would turn $40k into $5 million in the stock market."

Your right. It is laughable that someone would buy a townhouse for $200k in 1995 and sell it now for $5 million because nobody has ever done such a thing. You have no clue what your talking about.

"When you buy at the right time"

If only you had bought Home Depot or EMC in 1990, you would have made 2,000 or 5,000% percent if you had sold in 2000. Had you only used options, you would have made 10X that. I.e. the CBOE lets you use...LEVERAGE just like a home loan. Or gold futures in 2002. Or better yet, options on gold futures.

What an asinine statement. With the right timing, any number of investments could make you rich.

Dealboy - play the welfare card? I don't think you have any idea what you are talking about. Quite a few veteran Upper West Siders are proper white-collar middle class people who are locked into low rents for as long as they choose to live here. Your calling it the "welfare card" show exactly how much you know.

You shouldn't be angry that you paid 900,000 for an apartment smaller than your neighbor who is paying $1400. They are just smart enough to nkow that renting - for them - is a good deal.

***

I see you also have excluded from your good times to buy 2000 --> now, and you probably aren't aware of the times when people got screwed royally in the 1980s. I also see you don't have any idea of what the costs of apartments are and who could actually afford them.

Some people think that buying is better than renting. Tell that to the 12 people I know who bought in 2007. Every single one of them wishes they were renting instead.

By the way, I rented a sweet one bedroom on Riverside drive for $2400 in 2006 and managed to save over 100k in the 4 years I lived there. (That's just me, my wife saved over 150k)

I could have purchased that apartment for 650k in 2005, and when I moved in 2010 sold for just over 400k.

Tell me, was it better to rent or buy?

So to crystallize your argument: Buying is always better than renting - unless you bought in the last 5 years, or maybe the last ten, then maybe it isn't so good. Very tight logic there.

>> Owning is win/win. Lower monthly cost for your whole life and a million dollar payout at the end.

Do you really believe that is true? I can't believe that you are so ill-informed. I am beginning to think you are just trolling.

A handful of morons who nailed the top in 2008 do not negate the general rule. What percentage of total NYC owners does this make up? Can you find me ANY sliding 30 year period where owning was worse than renting? No, you can't. Over a lifetime, owning is way cheaper by the month, and you get 800% of your buy price upon exit. Win/win.

Who would pay $900,000 for something that sold for 1/3 of that price just a few years before? An idiot, that's who.

Or anyone who sees what a great investment real estate is, and can't wait to catch the next triple.

Who would hold onto something that appreciated from $100k to $1,000,000? Who? What Fking moron? What ninny even if you had to pay 6%.?

Not totally persuaded on the monthly costs point. Maintenance seems to run around 1/3 of rent on a similar apartment, and maintenance is just as much subject to inflation as rent is. So the question is really whether the rate of inflation applied to the other 2/3 of rent will, over time, cause monthly payments to increase to the point where it overtakes the interest costs on a mortgage. I don't see this as a given the way you do, dealboy. Probably works out when both prices and interest rates are low, so the interest payments are held down.

Also not persuaded on the appreciation point. As a buyer you have to be pretty lucky to hit the valley in a boom/bust cycle. If you bought in 1989 and try and sell today, you are not doing that great on an inflation-adjusted basis. You would have been much better off putting your downpayment in MSFT, for instance.

Much of this argument stems from assumptions and what period of time one measures. Going forward rents are expected to increase substantially. So much of the thinking that real estate is bad is coming from 2005-2010 experience and is not forward looking. Some markets will see REO inventory worked off in about a year, and Manhattan never really had an REO issue.

Return on rental: Absolutely 0%
Return on owning: depends

Return on not gambling - 0
Return on Vegas - depends
Return on okai's education - not worth the $10 application fee.

Being a borker => priceless. Free open houses for life!

Citing a couple of people who lost money b/c they bought in 2008 is like saying stocks are always a horrible investment....right after a market crash. For the vast majority of people who buy an index fund and hold it for 40 years, it's a good move. Same goes with owning your place.

Also, in every other part of the country, it's cheaper to own than rent.

own vs. rent......is like real estate itself....very location dependent.

in most parts of the country I think it's still cheaper to rent than own when you consider the # of rental properties that have flooded the market. Now in Detroit that might not be true. If you buy in the wrong part of Detroit you might find youself no longer inside the city limits (without civil services).

The rent vs own calculation is as much driven by current fundamentals as it is by future expectations and intangibles.

Hey Dealboy, if I bought an apartment in 1995 for $300,000 and then sold it for $1,200,000 in 2006 that would be a great return as long as I am leaving New York - renting an apartment.

But if I wanted to stay in New York and buy another place similar to where I lived, then I didn't make any money, right?

At the same time, I know a lawyer who had a chance to buy his huge apartment in the mid 1980's when his building went coop.

Instead, he decided to keep paying his low rent, and take his savings to open his own practice.

A few years ago he sold that business for mid 7 figures.

Now he has a beautiful home outside of New York City, and still has his apartment with the low rent that he can pay for with Social Security. And he never had to and will never have to pay any assessments to replace elevators, roofing, renovate the building interior, fix the facade etc.

On the other hand many people who sold their apartments in that building and left town because you can't realize the profit of selling your apartment if you have to buy another one. They made a lot of money, maybe one quarter what he did.

Maybe I should put you in touch with him to explain how buying is the only way to go and what an idiot he is for renting?

Of course not everyone has the same opportunity costs... or spins the dice the same

so..rent stabilizer.

it all depends?

unless you feel like saying otherwise.

oohah, your logic is silly. You're implying he'd never have started a law practice if he was an owner vs. a renter. If he bought the apt, he'd have a million MORE bucks on top of the proceeds from his practice.

Can one of the older members here cite a ballpark selling price for a typical 1BR apt on the UES from 1970, in 5 years increments? I'm curious just how much values have skyrocketed in the last 40 years.

Also, can you do the same thing for a brownstone on the UES?

Not only did the one bedroom increase in price, but it did so tax deferred.

No Dealboy, I am showing you a REAL WORLD EXAMPLE.

If he had chosen to buy his apartment, he would have spent his savings, and he would not have been able to leave his job where he worked for someone else and start his business at least for many years.

It's the real world. Sometimes buying is the right way to go, often time it is not.

Dealboy, instead of cherry-picking the lowest times to buy and highest times to sell, why not request some examples of a person who purchased in 1995 and sold in 1998?

I know a couple who bought in 1995 and sold that apartment to move to Westchester in 1998 when they had kids.

Long story short, they sold the apartment for about $30,000 more, but really did not make any money when you factor in renovations, legal fees, time spent looking for the apartment and a buyer, etc. They might even have lost money.

Dealboy, I know a nice lady who bought her apartment across the street from the Museum of Natural History in the early 1970s. She paid lower 5 figures.

When she sold a few years back, it was for nearly $2,000,000!

And then she moved down South because if she wanted to stay in new York in a similar apartment/neighborhood, she would have had to spend nearly $2,000,000 and use up all of her profit.

And had she not moved down south, just about any place she would have purchased would be worth the same amount of money or less.

Do you understand the point?

First of all, on a discussion board with lots of smart people, the two of you (dealboy and oohah) are going back and forth with the most moronic off-point arguments I can imagine.

dealboy ignores the "long term" and focuses on NYC's recovery from a triple-whammy that hit hard from the 1960s-1980s [the correct argument is that you wouldn't want to be the one holding the bag from the mid-1920s to the mid-1960s.

oohah is arguing about rent-regulated apartments versus market-rate purchase, which is not at all a question of renting vs. owning, but rather of giving up a tender trap in favor of occupying your investment, if you could only choose one of those options. In your last example, of course, the answer would have been to sell at $2 million and buy a similar place in a neighborhood that has the character of the area surrounding AMNH in the early 1970s [the flavor of which was captured nicely in The Goodbye Girl], for a fraction of her treasure chest.

It's better to rent than to own.

Actually, the point I am making - very well in fact - is that there are plenty of situations where owning is not better than renting. People who have regulated apartments is just one type of those situations, and it is perfectly valid when others are citing examples of people who purchased 25-40 years ago and sold present-day.

And Perhaps you should read 2 posts up where I give the example of a couple who purchased a market-rent apartment and sold it for a little bit more but really did not make any money when all was said and done.

And as to your last "answer" that the answer was for my friend to simply buy another place in a neighborhood that has the same character as the Museum did in the 1970s in order to retain the profit.

Well, that point that you think you just made is just ludicrous and moronic on its face.

Please tell me where that neighborhood is that she could have purchased an apartment that was so similar in character - whatever that means - to an apartment 150 feet from Central park and across the street from the Museum of Natural history and smack-dab in the middle of Manhattan in the 1970s or any other time.

Get real ... that apartment was also 150 feet from Columbus Avenue and its frequent murders, muggings, etc. Give your Southern Belle buddy a call and she'll confirm it. Apartments in the Dakota were selling for $1. Rosemary's baby wouldn't live there, except in a work of fiction.

Your argument about someone not making much by holding short-term is a good argument against buying for the short term, but a distraction from the original post's premise that the return is 0% in the LONG TERM. Irrespectiveless of what period.

The only reason to buy, then, is to be able to paint your living room pistachio and have a Rorschach Test mural painted onto your bedroom walls. And there's nothing wrong with that.

you most certainly can have pistachio-colored walls if you rent (although i've always focused on aubergine). it just might get a bit expensive if you move every year.

Especially moving that Rorschach Test mural to your next bedroom. And there's nothing wrong with that.

As a matter of fact Alanhart, I am from said neighborhood and grew up there as a child. I also talked to her about what is was like when she bought the apartment as well. You are exaggerating. While it wasn't the prime neighborhood back then that it is now, 77th and Columbus avenue wasn't hell either. And further, the entire of New York City was in a depressed state in the 1970s. Most of Manhattan is higher-end now.

Your point is like saying that somebody who purchased a brownstone in the West 60's back when it was the neighborhood depicted in West Side Story, then sells today for a multi-million sum, should then move to a neighborhood that is filled with gang violence in order to keep their profit.

To say that she should go buy a place in a shitty neighborhood that mirrors her block 35 years earlier (Which is wrong) is silly and there really is no such place.

She should be able to live in a place that is similar to the neighborhood she is accustomed to living in now.

And in order to live the life she has grown accustomed to, she has to stay where she lived, buy a new apartment that eats up all her profit, rent, or alternatively move out of town.

Simple as that.

Wow, you grew up near there? What was it like? What school did you go to?

oohah, having to buy another apt does not negate that fact that the renter got a $0 payout, and the owner got a $2mill. payout. SHE HAS 2 MILLION BUCKS the renter does not. How you can't see that difference is funny.

Your anecdote about a couple losing money after only 3 years is not what I'm talking about. I am talking about owning something for 30 years vs. renting the same thing for 30 years.

This is really funny.

If you save on carrying costs, and you save on downpayment, then clearly that savings has a value greater than zero. I don't understand how people keep saying that is a $0 payout. Even if you don't invest that savings, you at least are spending it on other things that provide you utility right now that you wouldn't otherwise be able to afford, which has to be worth something.

Oh, lordy. . .

I get so tired of this argument.

HERE'S A CALCULATOR; http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Here's the truth;

"Opportunity cost" Is bull. The average investor is lucky to eek out 3% from their investments, if they don't just lose money, over the long term. With their lame attempts at market timing, market crashes, and bad calls, they can't beat the S&P. But neither can the majority of fund managers.

Housing is a break even proposition. It's a forced savings account. The only way to "take profit' is to downsize. Most people do, because they end up living in one room in a "retirement home".

Renting doesn't even offer the option of breaking even. Because when people have extra money, they SPEND it, they don't invest it and make great returns. Where did all that "home equity" money go during the RE boom? Vacations, cars, and other depreciating assets.

The best thing someone can do is pay off their mortgage. The "tax advantages" of a mortgage are stupid. For every $3 in interest you pay, only $1 comes off your taxes. That's IF the AMT doesn't screw you out of that. Meanwhile, over 30 years, that $100K property cost you $300K in total.

Look at this way.
Over time the mortgage payment gets paid off and/or eaten away by inflation.
After the mortgage payment is gone the cost of carry is less than the cost of rent(maybe it already was)
The home value can be monetized by selling.

As a renter if the rent was more than the initial mortgage, r.e. tax and operating cost, then you're an idiot or don't have savings.

but otherwise it's a bet that bonds or stocks ,etc appreciate more on an after-tax basis than real estate.
Could go either way, but that's the bet and for the average person r.e. wins.

"Over time the mortgage payment gets paid off and/or eaten away by inflation.
After the mortgage payment is gone the cost of carry is less than the cost of rent(maybe it already was)
The home value can be monetized by selling."

Be consistent then... so does the down payment, eaten away by inflation.

Money not put down in the down payment obviously has a better shot at earning a return.

No, Steve, THIS is really funny:

http://query.nytimes.com/mem/archive/pdf?res=F10B13F73B5912738DDDAF0894DF405B818AF1D3

"Renting doesn't even offer the option of breaking even. Because when people have extra money, they SPEND it, they don't invest it and make great returns."

Even so, all of that spending produces value for the spender, and that person never would have realized that value if he/she had instead sunk the money into a coop. Maybe that is a bad choice in the long run, given the alternatives, but it is not $0.

Be consistent then... so does the down payment, eaten away by inflation.

Money not put down in the down payment obviously has a better shot at earning a return.
----------------------------
Incorrect.
The down payment is now equity in the property(asset). It is an un-leveraged participation in the property.

<15x annual rent.

"Renting doesn't even offer the option of breaking even. Because when people have extra money, they SPEND it, they don't invest it and make great returns."

And yet millions of American HOMEOWNERS spent money from home equity lines of credit and second mortgages the exact same way. Fail.

""Opportunity cost" Is bull. The average investor is lucky to eek out 3% from their investments, if they don't just lose money, over the long term."

EPIC FAIL. Over the long term, US stocks have earned 9.3% a year on average since 1929 and 8.7% a year since 1961. LT USTs 5-7%, depending on the length of your "long term". Corporate bonds a little more than USTs. Etc. You pulled this 3% # out of your ass.

HOWEVER, S&P Case Schiller and essentially every economist who has ever studied this question has pointed out that over similarly long terms, residential real estate (including NYC real estate specifically) has underperformed these assets.

Sorry, 9.7% since 1961.

You guys are all over the place.

"Stencil: I'm not saying buyers don't necessarily save/invest outside their home. But, having invested so much in a home, they clearly have less other money available to save and invest. The same analysis would apply."

I have just as much to invest elsewhere as a buyer as I did as a renter, not including the equity I'm building.

One thing no one is mentioning is quality of life: I rented for a LONG time, and rentals are never as nice as places you own and love. This is obviously a very qualitative thing, but I'm much happier in a place I own and care for as opposed to a place I feel I'm just borrowing, waiting for someone else to fix.

"One thing no one is mentioning is quality of life"

At 29x annual rent, that's one expensive lifestyle you run.

"Money not put down in the down payment obviously has a better shot at earning a return."

Unless steve invests it for you.

stencil, in reality many owner-occupants can't find the time or money to make repairs to their places. Professional landlords, on the other hand, compete with one another for tenants who will maximize the landlord's profits (or minimize his short-term losses).

A paying tenant is gold, fleeing tenants and empty apartments not so much. Well-functioning owners of investment properties fix things very quickly. The only real exception is if they plan to redevelop or overhaul the property soon.

"in reality many owner-occupants can't find the time or money to make repairs to their places."

Then they shouldn't own.

If what you're saying is true (which I doubt), it would make me wonder how someone who can't scratch up $100 to unclog the sink managed to make it past the board in the first place.

JuiceMan, before I forget: HAHAHAHAHA!

Read my posts, they've all come true. Do I have to post links to your predictions on housing, and what has actually happened. And where we're headed is another 50% decline in Manhattan over the next few years, till owners' carrying costs = market rents, and/or prices = about 12x annual rent.

You're also now seeing the beginnings of the Next Big Stock Market Crash. Someday, the Fed - or should I say Monetarists - will learn that artificially inflating the money supply only postpones problems, & makes them worse. The bailing is starting in anticipation of the end of the disastrous QEII - it will continue to get worse as the money is drained out of the system, and interest rates rise to normal levels. Volume is increasing on the downside, and once the bailing starts, it exacerbates quickly.

FYI I made over 30% on my money last year, and no doubt that I'll make another 30% this year. Just took a little longer than I thought it would. But the 52-week low on the Dow was 9,614; the 52-week high was 12,876. That's a 34% increase in 6 months, all of which started in September, with QEII. In my opinion within the next 6 months we will go below the 52-week low as it was all engineered through free money, which is still flowing. If you take that as I buy sign because I said it, then go ahead and buy.

My shorts remain on.

Oh yeah, JuiceMan - if property prices actually can increase faster than incomes, WHERE DOES ALL THAT MONEY COME FROM?

And if stocks can rise 34% in 6 months when the economy was slowing and unemployment is rising, how fast will it rise when the economy actually does improve?

"if property prices actually can increase faster than incomes, WHERE DOES ALL THAT MONEY COME FROM?"

From same pool of money where it always came from. Only a greater percentage of that pool. A generation ago most people spent LESS than a week's net pay on housing. 15 years ago that was upped to a week and a half. Today it's now TWO weeks ... and change!

*****

"if stocks can rise 34% in 6 months when the economy was slowing and unemployment is rising, how fast will it rise when the economy actually does improve?"

Stocks won't rise when the economy improves. Wall Street thrives only when Main Street DOESN'T.

NYCM, you have some novel economic theories, which unfortunately that limit how much income can be used for housing. And, in fact, you've missed the major point with your paragraph 2: the difference is leverage, and more than two weeks' pay spent on housing is not long borne. Hence the crash.

And no, stocks rise and stay risen with the economy. What we are faced with today is a Fed-induced bubble of all financial assets since September 2010. All the charts are identical. Once the money is pulled - as it must be, because it's causing inflation and is actually counterproductive by reducing jobs and investment - the whole thing will collapse.

Personally, as I've said before, I was pretty amazed that the Dow got to where it did; I thought 11,500 was possible, never 12,800. It just means that prices are going to collapse further, and faster, though, as the what caused this price rise was free money, which is now going away.

Ooops - computer glitch! "NYCM, you have some novel economic theories, BECAUSE THERE ARE MARKET CONSTRAINTS WHICH UNFORTUNATELY LIMIT...."

Rent...at these prices is a good financial plan
buy...at these prices is a bad financial plan

buy a good price for the long haul is a reasonable plan. For someone with a long time horizon and a discomfort with financial investing a home purchase is a safe brainless way to attempt to protect your nest egg long term. I'm not saying is financial genius but for many with savings and a need for shelter this is a reasonable lifestyle choice. The problem is that the size of the down payment is so large inorder to bring the monthlies into 'rent size prespective' that it's hard not to drop in the whole ball of wax. Let's take a 1.6M coop with a $2650cc. Think about how much you will have to fork over to bring the monthly down to 5.5-6.5K/mo.

"brainless way" = the LICC way!

okay, steve. since you made over 30% last year, and there "is no doubt you will make over 30% this year", where is that 30% coming from? your anticipated gain on covering your existing shorts? what are you shorting exactly? margin interest? you seem to have a bead on market timing - when is the next price collapse? this year, 20% drop or more? seems like the market is ripe for a correction - thats not going out on any limb -- what specfic predictions are you making? no doubt you will make 30% this year, thats one for the books. classic boast of a tinman.....

Sorry, RF, but I along am honest here on my profits and losses.

think its dubious at best to suggest that you will "no doubt make over 30% this year" without any substantiation. a little texture wouldnt hurt but forget it, shouldnt have bit on such an over-the-top proclamation....

"And where we're headed is another 50% decline in Manhattan over the next few years"

Wasn't this already supposed to have happened? When you say 50% decline, do you mean from 2007, 2008, 2009, 2010 or today's prices? You been saying this so long we have all forgotten what your baseline is.

"classic boast of a tinman....."

Exactly

A 50% decline from where prices will be in 2025.

Yes, JuiceMan, I was saying it at exactly the same time as you were saying that prices in Manhattan were rising forever....

"My shorts remain on."

Until they don't work then there are off

It is almost impossible to make the NYT rent vs buy calculator show renting is better in a 30 year scenario. The only way it happens if when rent stays flat, and home values go down. Rent has never stayed flat for 30 years, and homes have never stayed flat for 30 years.

The entire crux of the renter fallacy is that the renter will compound his downpayment for 30 years in the stock market. Great on paper, but this has never happened in the real world. Does anyone know a multi-millionaire renter outside of NYC? Didn't think so.

You got that right, JuiceMan! Margin is at its second highest level ever, exceeded only by June 2008. Culprit: free money. Margin is a Ponzi scheme, which collapses when people start withdrawing "theirs". There has been virtually no volume on the entire ride up 34% in 6 months, but there's been volume aplenty on this last fall, and the free money party hasn't officially stopped yet, won't till June.

If I had thought there was a fundamental reason for the stock market rise besides drugs, I would have reversed course. But there was no fundamental reason for the stock market rise, and when boomlets like this reverse course, they do so rapidly.

DB - I know a woman who bought an apartment in Miami for $1 million, and now couldn't sell that property for $500,000. I know her because she bought my apartment.

dealboy=dopeboy=>completely stoned out on owners' koolaid, he trumpets the most hilarious borker garbage

30 years ago the treasury issued a 14% long bond--compound that, fool

WB, people must take a lesson in "Reversion to the Mean": in housing, it is about 12x annual rents and/or 30% PITI of gross income (same figure, more or less, given variances in the inputs). In stocks, it is p/e, which is also around 12x/15x over the medium- to long-term. Right now we're at about twice that.

Ditto commodities - they cannot rise forever, lest it becomes too expensive to eat.

Commodities with the exception of gold, which has no industrial use, and it can do whatever the hell it wants to, or Glenn Beck wants it to.

Caveat emptor: a compounded 4% annual growth rate is impossible over time.

I find dealboy & needsadvice's arguments very amusing. Basically, it seems to come down to an assumption of financial incompetence. I.e., you are so financially incompetent that you cannot simply buy an S&P Index fund. So financially incompetent that you cannot help but spend every single cent you make. So, the advice is not to address the financial incompetence; rather, one should mitigate it by utilizing the lesser financial incompetence of buying a home regardless of price vs rent because it'll contain the financial incompetence. OK: advice from the financially incompetent for the financially incompetent, blind leading the blind.

Who knows, they may be right? If you're financially incompetent and are committed to staying that way, then making this financially incompetent choice may be your best bet. I just can't get my head around the part about committing to financial incompetence.

steve is back making a total fool of himself again. The amazing thing is how unaware he is that he is considered the streeteasy clown. What happened to that prediction of his of 70% declines in Manhattan real estate prices? Actually all of his predictions and analyses have been highly comical.

"My shorts remain on."

I thought this was a nudist party? Shucks.

"I just can't get my head around the part about committing to financial incompetence."

nada, you're far too kind. Understanding willful ignorance is the human equivalent of a dog chasing its tail.

"What happened to that prediction of his of 70% declines in Manhattan real estate prices?"

Never made such a claim, LICCdope. Just like I never bought property in Long Island City. HAHAHAHA!

Oh - thanks for the chuckle, bjw! Though LICC makes me chortle, I do like a chuckle, too.

Bingo Inonada. It's nyc10023 re trade mentality. Maybe she goes and tries to do poorly in the equity mkts so that she can rationalize being a homeowner... :) who the fk knows.... But financial stupidity abounds. The mere fact of having money is no guarantee of being able to fully utilize it.

Savings me dollars for the 30 yrs 14% bonds. Gonna make some homeowners my slave. Wipe my azz you fktard

well said inonada

"i find dealboy & needsadvice's arguments very amusing. Basically, it seems to come down to an assumption of financial incompetence. I.e., you are so financially incompetent that you cannot simply buy an S&P Index fund."

Yet they ignore how financially incompetent millions of actual homeowners in foreclosure now have been this past decade, and how many millions borrowed way too much against there homes to spend on vacations and RVs.

"Be consistent then... so does the down payment, eaten away by inflation.
Money not put down in the down payment obviously has a better shot at earning a return. "

"Incorrect.
The down payment is now equity in the property(asset). It is an un-leveraged participation in the property."

And the long term return on property was shown by Shiller to be... 0%.

The original point holds true.

Forget my RE "equity" - pretend that it's zero. I have been talking to "wealth" mgmt types. They still want to see me 30-30-30 in fixed income- munis - equities. Leaving 10 percent for cash. Is this the way to go?

You must be older than 60, no? That is the way to go if you are older and high tax bracket, yes. Not if you are 25 and make $100k or less.

agreed... 30% equities is retirement age stuff. The rule of thumb is subtract your age from 100... but it also depends on your risk tolerance.

W67: I don't intend to do badly in the financial markets. It just happens if we take my views & partner's views and go somewhere in between, that it doesn't work out well. I bought S&P 500 when TARP package first failed to pass but chickened out when it passed but markets sank. Blabla, I could go on (bet on USD at wrong point in time, sold AAPL, shorted financials). I will be the first to admit that I don't like having X% of net worth tied up in something that leveraged, illiquid, and with some dismal prospects. Fact remains though if I want to live in my micro-neighborhood, that there's not much to rent that wouldn't be more than a tradeoff. Yes, I could rent some Trump RSB apt and just have a car/driver on call for the difference but then I would be living in Trump RSB (no offense to anyone who lives there).

What neighborhood is it you think you can't rent in? I'm not saying its not true, I'm just curious.

SWE: this is tricky. Because if I tell you, I'm outing myself and my specific address. At this point in my life (everything can change in 3 years), with the various school runs and my personal preferences, I am down to a handful of buildings (owning or renting). There is some rental inventory, but as of right now, there are no vacancies. So, if I sold now, taking advantage of the late spring market, I can rent but put all our belongings in storage until the right rental came along. I wish that I could be 100% utilitarian and about the bottom line ($-wise), but we are not.

@JASON: Okay, let's say I buy an index fund tied to the D&J.

Let's say I buy it on Jan 10, 2000 when the market is 11,722.

As of today, I would be up to 12,560.

A WHOPPING GAIN of 838 POINTS. For eleven years. That's six percent. Not per year. TOTAL of 6%.

I believe real estate, even with the bust, appreciated more than 1/2 % per year in that time period.

Try it yourself, play with this lovely chart thingy;

http://finance.yahoo.com/echarts?s=%5EDJI Interactive#chart3:symbol=^dji;range=19991005,20110517;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on

Dollar cost averaging. Can't dollar cost average on re, just roll the dice motheffker.

You play with yourself first.

This thread has become really interesting. I refer to my post above (and Wbottom's perceptive addition a few posts down).

The rest of the thread is rather emotive, and seems to say little more than:
- "my favorite investment (housing) is better than yours (stocks)" (or vice versa)
- "you are incapable of saving therefore as a renter you will lose"
- "buy low and sell high (but I can't accurately predict when is low and what is high)"

Lots of fun, but not really adding to the sum total of human understanding.

Seriously, needsadvice? Cherrypicking aside, here's the Dow:
http://stockcharts.com/freecharts/historical/djia1900.html

... and note that some US metros are back to 1999 prices (and still dropping fast) for residential real estate.

Thanks for the highly accurate summary, jeremyfg.

Someday some people will realize that buying a house to live in is not an "investment": it is a capitalized expense. That is, you're prepaying the rent then slowly paying it back over time in the form of a mortgage loan. Or, if you buy all cash, you're just prepaying the rent.

Rent is an expense, because you consume the end product (a place to live). When you buy a freezer full of meat you don't say, "I've invested in beef," because you're going to eat it. If the market rate for beef is $10 a pound, and you pay $13 a pound and hoard it, you haven't made an "investment" - you've lost money.

Ditto with real estate: if you live in the place, it is a consumable. If you pay $13 a square foot for it but could rent it at the equivalent of $10, that's no investment. It's fools gold.

Steve, I mostly agree with you, except that with meat, once you consume it, it's gone (well, technically it gets converted to something else, but yeah...). With property, aside from some cosmetics, it's pretty much intact. That is what trips people up. I agree owner-occupied real estate is essentially consumption, but it is a bit weird to think of it as such when nothing is really consumed physically.

"it's pretty much intact" ... no, it's a physically deteriorating object, and also a design-obsoleting good (and given that the real estate product's value is largely derived from the aesthetic appeal, that's very important).

Even if you sell a house with a new roof (20-year lifespan) after 10 years, half of its usefulness is gone by that point. It's like your steak has been half-consumed by maggots, and you only have half left to eat. Plus whatever sizzle is left at that point.

The land, however, continues to increase in value. In Detroit, they've found value by using the land that mansions used to sit on for community gardening. You can't do *that* with a securities investment.

Excelsior!

bjw, you're right - as AH states - insofar as the fact that the land remains. The building continues to deteriorate, and it requires maintenance. But barring immortality, any one individual's consumption of real estate is limited in time.

Change the analogy slightly - you buy a freezer full of meat, then decide to sell the remainder once you eat half of it. It remains an expense. The economics (and accounting) are entirely different if you rent it out to someone else, much like you can't get rich mowing your own lawn, but you can get rich mowing other peoples'.

Most don't get this - owner-occupied housing cannot increase in value faster than incomes over the long-term. Rental property can. It DOES make sense to buy a place to live provided that the carrying costs (amortized capitalized rent) is less than the discounted value of future rents payable. Otherwise, it's a losing proposition.

UNLESS you're LICCdope, & invest your life savings ($1.53) in a Room with a View - of the Queensbridge Houses.

HAHAHAHA!

alan, what's a "roof"? But seriously, what's the average homeowner years? 7? Unless you're exceptionally bad at upkeep, ain't no real maggots in that time. Condos/coops take care of the exterior, which is not totally free of course, but it's well spread out (time and share/owner).