35 replies to this topic

[The Average Joe]

You forgot the biggest factor in your calculations...mortgage interest deduction. Let's use our modest example of 200k at say 5%. That's 10,000 dollars in interest a year that the "owner" can deduct off his income prior to being taxed. He can also deduct that 2300 dollars he paid in property tax. His net savings in taxes would depend on his total income, but figure between two to three thousand dollars saved for the year which equates to around 250.00 dollars a month.

[AMETHYST PRODUCTIVITY]

Aside from the financial aspect, you need to look at many other variables. Is owning a home right for your family? Do you even WANT to spend the time that maintaining a home involves? I don't think a weekend goes by when we're not fixing something or doing yardwork, etc. A lot of people are flat out not interested in those responsibilities.

Our family on the other hand couldn't stand to be restricted by someone else's rules, etc. We have 2 dogs, 2 cats and want to paint the walls whatever we choose.

Our home isn't going to make us any money for a long, long time but it's our home and we're emotionally invested in it now.

[Steve Heard]

Off subject question, but are homes really a good investment? (maybe this should be in a new thread?). I keep hearing more and more they are not good investments from several different financial advisers.

As the great Will Rogers said, “Buy land. They ain't making any more of the stuff.”

Whether or not it's a good investment depends on your goals, but most people in America have built wealth, have done so on real estate.

Just about 1/3 of all real estate transactions so far this year have been by investors.

I'm not sure they are right because I do like owning my own home but they did bring up some good points about houses...

- they lose value more often then they gain value

HOGWASH! Think of how much a home costs in Folsom today. How much 15 years ago? 20? 30? 50? Real Estate has market dips, and even crashes, but it still costs more today than it did, in most neighborhoods, 10 years ago. My cousin bought a place in San Francisco in 1975 for $43,000. Today it's worth over a million. My home was purchased in 1997 for $175,000. I bought it in 2001 for $327,000, and today it's probably worth about $375,000..

even for those 200k houses with a mortgage of 1500 a month, that doesn't include the taxes and insurance and maintenance so the actually costs will be higher over time.

Taxes and insurance would be covered by that figure. $200,000 at 5% for 30 years is $1074 per month. Figure in about $225 for taxes and $75 for insurance. Maintenance costs vary.

Home ownership is not something to be taken lightly, but it is a great way to build wealth while lessening your tax burden.

[bookwom]

On the subject of tax deductions - because you have home interest and property tax deduction, you now itemize deductions instead of using the standard deduction. So you can take advantage of other deductions, like personal property tax on your cars and charitable donations, that you wouldn't have before because it didn't add up to enough.

Another tax benefit of home ownership is that when you sell it, if you are lucky enough to have a profit, that profit is tax free if its less than $250000 for a single person, 500000 for married filing jointly (with some conditions). That and Roth IRA are the only ways I know of for an average person to make money tax free legally.

Finally, when you pass away and leave a home to your heirs, if they sell it right away all the profits are tax free.

All together, I think it is a good investment. If you pay rent, you are adding to someone elses equity. If you own, that money goes towards yours. The days of making thousands in a few years are gone for now, though. It needs to be a long term investment.

[Dave Burrell]

Aside from the financial aspect, you need to look at many other variables. Is owning a home right for your family? Do you even WANT to spend the time that maintaining a home involves? I don't think a weekend goes by when we're not fixing something or doing yardwork, etc. A lot of people are flat out not interested in those responsibilities.

Our family on the other hand couldn't stand to be restricted by someone else's rules, etc. We have 2 dogs, 2 cats and want to paint the walls whatever we choose.

Our home isn't going to make us any money for a long, long time but it's our home and we're emotionally invested in it now.

Great thread and excellent replies!

I love it when thought provoking threads are started that provide very good information about a subject, I also like reading all the views and input from all sides, it's especially nice when no snarkiness is involved.

[cw68]

Interesting thread. I'm a happy renter, which two years ago was not the case. In the last two years I realized that we don't know where the bottom will be so there was no rush and that gave me time to think. Now I don't want to own.

Yes, I miss aspects of owning my own home like decorating without thought and pride of ownership. When it comes down to it, though, I have few reasons to buy.

The tax benefits are not that great when you don't have a high income. My rent is completely reasonable and it's a lot easier to budget my income and invest in diverse investments knowing that housing is a fixed cost, no furnaces or windows or leaks to fix. I have a cushion to lean on should something disastrous happen, important in a single income family. If I owned that cushion wouldnt exist because it would have been a down payment instead. Lastly, I don't think I want to stay in Folsom once my kids are out of high school; I would hate to be "stuck"'in a home should we find ourselves in another difficult economic climate.

So, I rent. Works for me. Frees my money to work better for me.

[Terry]

Real estate is in investment when you have money that you want to use to make more money.

A home is the place you lay your head, have your family, and where your heart is.

I don't know why it seems homeowners constantly worry about their "investment" in their homes. Where else are you going to live?

It goes back to that old saying - don't spend what you don't have.

[cw68]

A home is the place you lay your head, have your family, and where your heart is.

Yep, and this is true regardless of owner/renter status.

[Steve Heard]

Thank you Steve and everyone for your feedback, it is very helpful.

Steve you wrote "I bought it in 2001 for $327,000, and today it's probably worth about $375,000".

Here's the way I see that, it took 10 years to make 48k in profit on that house, if you were to sell it now, it would cost a few thousand to sell so lets just say you end up with 40-45k in profit once it's sold. 45k in profit over 10 years time. But also keep in mind that the market likely hasn't hit the bottom yet, so it could potentially go lower thus lowering your profit even further. Are there any taxes on selling a house for profit? I know there are when you sell a rental for profit but I'm not sure about a personal home.

If I were to rent a place for $1500 instead of buying a place, that with all the other previously mentioned costs would equate to about $3000 a month, I could then save that extra $1500 a month - by renting instead. (1500 for rent 1500 into savings)

$1500 x 12 month x 10 years = $180,000 that's not counting the additional interest income from a savings account or similar.

This is why I am questioning my house as an investment. 40k in 10 years, or 180k in 10 years... I honestly don't know if I'll get to the point of having 180k in profit from my house. Even when the market maxed out I didn't have that kind of profit in this house investment.

Don't get me wrong, I like my house and enjoy home ownership, and I agree with your statement about land, I'd like more myself. I'm just thinking about the math, what I'm making or losing, future savings and future retirement. Mostly I'm just thinking out loud, please don't take any of my questioning negatively, it's just my curiosity and quest for knowledge.

I wish there was a tax expert her to help us with the math!

From my perspective, I think your numbers may be off. For example, if your house payment including tax and insurance is $1500, what are you spending the other $1500 on to bring your costs to $3000?

Is a house a good investment? For some, yes. Had I sold my house in 2005 when it was apprased at $522,000, I would have replied to that question with a resounding 'YES!', as I would have made $195,000 in 4 years time.

The housing market, like the stock market, is cyclical and prone to swings, but overall homes cost much more today than they did 10, 15 years ago and a helluva lot more than they did 20 to 30 years ago. My house is worth $198,000 more today than the previous owner paid in 1997, so had he still owned it, he'd probably be happy. If he'd bought it for $522,000 in 2005, he'd likely be pretty po'd.

If someone is saving for retirement, real estate can be a great hedge against inflation. If one is looking for a higher rate of return on their money than they can get through CD's and most other interest-bearing vehicles, being a landlord might be a good idea, providing income and tax benefits, including depreciation even if the house actually goes up in value (someday). I have to say that I am not a tax expert and can't give tax advice, so don't quote me on that one!

If someone is looking for a quick buck, real estate probably isn't a good investment.

It's not for everyone.

[caligirlz]

I've never thought about my home being an investment.

I think there is a lot more awareness now on "home value." Not that it really changes anything, but perhaps gives us another viewpoint.

This weekend, I talked to a realtor for a development having a "close-out" sale. Granted, they were offering about a 25% discount from the price 1-2 years ago, with lots of "freebies" throw in. But the bottom line, was it was not an ideal location (not even close), and the base price was still above my budget, as would be the tax base. The realtor tried to shame me into not considering the house an investment because I was concerned about the over-budget base price. I almost fell for it, but THANKFULLY, my friends talked me down to reality.

So, during the bubble, the market forces pushed people to buy more than they could afford, and now post bubble, the same forces are attempting to do the very same thing, but by twisting the words previously used to push, but now to pull.....

I've noticed the same shady financing deals are available too...