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Is a home an appreciating asset? Think Slowlane Context

Generic_Username

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Dec 22, 2018
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This is talking in the Slowlane context of the "Schmo" family living in ABC neighborhood for say 30 years and "hoping" their XYZ home will appreciate relative to the actual renting costs. I'm skeptical of homes as investments to build net worth like I'm skeptical of Wall St to build net worth (unless you're a day trader or flipper). Here are the reasons why:
1. Home prices are based on demand and actual building costs, right? Demand is basically economic growth and wage growth--stagflation or a recession could always occur, and homes aren't exactly liquid like stocks--you can't get out of a home if you see trouble.
2. Homes are tangible, but tangible assets tend to have wear and tear--cars are depreciating for this reason. So the home itself is depreciating.
3. Homes aren't cheap, so you have to get a mortgage most of the time, but mortgages have interest which cuts into any return. Interest rates for homes aren't non-negligible--I think they're at inflation for prime borrowers or maybe higher.
4. Homes have plenty of fees-property taxes, commissions to brokers, insurance, etc. You need to rent a home to fight these costs in my opinion, but if you're living in the house you can't exactly do that.
So would a home actually appreciate?
I'm skeptical—when you’re renting you don’t get a depreciating house, you don’t have to pay for any repairs (though the landlord passes the costs down to you), renter’s insurance is dirt cheap, etc. I’m no actuary but a ton of factors have to go your way for your personal home to get a positive return for you relative to renting, especially if you want to use the equity to fund your retirement.
 
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Generic_Username

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Dec 22, 2018
13
22
The only reason I can see you would want to buy a house is to just pay in cash/check to cut living expenses for yourself (no more rent/mortgage payments) substantially, but you have to have a high net worth for that to work (CENTS business anyone?).
 

Kak

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All you say is true. Yet, most of the time real estate appreciates.

Is appreciation, or good rental income guaranteed? No, but you can make a pretty educated guess.

Are interest, taxes, insurance, repairs and your mortgage payment guaranteed to come out of your pocket? Yes.

Will you make money on a house that you live in? Almost never.

Reconcile the above and make a decision knowing you will be one of the few decently well informed home buyers out there.
 
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Get Right

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You need to rent a home to fight these costs in my opinion

Your paying it either way. Ok, I'll take the opposite stance as @Kak just so you have a comparison.

IF - you live in a market that usually appreciates due to population growth (think Florida, California etc) and IF you buy at the right time and IF you sell at the right time, you can do well owning your own home. This is mainly due to no capital gains tax on the profit you earn (capped at $500k or so). Theoretically you could make good money if you had the will to move a lot and play the home value swing. Lots of IF'S but it can work.
 

Kak

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Your paying it either way. Ok, I'll take the opposite stance as @Kak just so you have a comparison.

IF - you live in a market that usually appreciates due to population growth (think Florida, California etc) and IF you buy at the right time and IF you sell at the right time, you can do well owning your own home. This is mainly due to no capital gains tax on the profit you earn (capped at $500k or so). Theoretically you could make good money if you had the will to move a lot and play the home value swing. Lots of IF'S but it can work.

Great points I absolutely can not argue one bit.

I do think both of our examples need the clarification between these two live in scenarios...

1. “Yay, I sold my home for more than I paid for it.”
-OR-
2. “I legitimately sold my home for so much more than I bought it for that it covered the closing costs, the realtor fees, the HOA fees, interest, property tax, all the repairs, maintainece of the property and insurance while I owned it.”

1. Is extremely common.
2. Is true profit. You almost have to be deliberate to do it, as you have pointed out.
 
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biophase

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I'm skeptical of homes as investments to build net worth the same reasons I'm skeptical of Wall St to build net worth (unless you're a day trader or flipper). Is it like the compound interest scam:
1. Home prices are based on demand and actual building costs, right? Demand is basically economic growth and wage growth--stagflation or a recession could always occur, and homes aren't exactly liquid like stocks--you can't get out of a home if you see trouble.

You really have to look at a home just as you look at any other business. Someone pays you for something of value, which is a place to live. Is your cost of providing this place to live, less than the income it produces. The answer can be yes or no.

If I buy a pizza shop for $100k that makes $30k/yr and I put down $10k and my loan costs $15k/yr, then my pizza shop makes $15k/yr or a 150% return on my cash. You can make this same calculation with real estate.

When you decide to sell your real estate, it will be worth the value of the structure + the value of the land it's on. Your real estate business has assets. Just like your pizza shop will have value in its reputation, location and equipment.

2. Homes are tangible, but tangible assets tend to have wear and tear--cars are depreciating for this reason. So the home itself is depreciating.

This is all part of your ongoing business expenses. The pizza shop expects to replace an oven or a fridge eventually.

3. Homes aren't cheap, so you have to get a mortgage most of the time, but mortgages have interest which cuts into any return. Interest rates for homes aren't non-negligible--I think they're at inflation for prime borrowers or maybe higher.

Just like other businesses.

4. Homes have plenty of fees-property taxes, commissions to brokers, insurance, etc. You need to rent a home to fight these costs in my opinion, but if you're living in the house you can't exactly do that.

So would a home actually appreciate? I'm skeptical--unless you're renting out a house in NYC while living in the cheaper Podunk Town, why would want to own/get a mortgage a house?

Ok, I see here that you are talking about a property to live in. Again, this is all a numbers game.

Let's pretend that you don't buy a home and end up renting the same house for 30 years. At year 30, would you have wished that you bought the home on day 1?
 

minivanman

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We go back and forth with this. We had moved in to an apartment (I first had it as my office). It was huge (about 1350sf) for an apartment. The only reason we moved from the apartment is because it sold to new owners, the new owners brought in new managers, the new managers sucked so we started looking for a house. Little did we know that everyone I was friends with in that complex all moved within a month because the new managers sucked.

I just paid $750 to have our heater repaired.... he didn't do it right so he is coming back in the morning at 9am. In an apartment, call the office, they send a guy right over, night or day. That's on top of $155 a year to make sure everything is running good and the coils are clean. It's so much easier in an apartment BUT you have walled neighbors. Here is all I have to say about that.... our neighbor that was at our bedroom wall sold male enhancement products and let me tell you..... they must work.

She lived in New York City for several years in an apartment and I had lived in several apartments..... we LOVE apartments but no walled neighbors is nice. I'm not saying I minded the 2am wake up call from the lady next door almost every night, but the damn dog below her would bark for an hour afterwards and that was enough to drive you crazy. If the lil woman ever retires I could see us moving every 6 months from place to place living in a different apartment. I think that would be the only way we move back to an apartment. We are starting to get old so a long term stay would be out of the question if we had bad neighbors. Yes, you can have bad neighbors in a house too but atleast they aren't connected to the same wall as you.

As for buying a piece of property as an investment, we choose to live our lives around what we like, not what is going to make us money. Oh yeah, that investment.... we are going to put in a new driveway, awning and cut down a tree this year..... I'm not sure that's going to pay off in 2050 when we sell the house. <<<< Just saying as an example.
 

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