We have purchased every house we ever liven in. I worked for IBM and got transferred around a lot. First house (in 1968) bought for $23K. Sold in '77 for $58K, bought next house for $58K, paid it off on accelerated method (thanks to my accountant aka Mrs. Elk). Sold that house for $140K and bought this house for $159K, which is currently valued at about 500K.

Homes are generally not a very good investment. I think the OP put it well when he said it is a necessary expense with a forced savings component.

We bought a house in an area where we reasonably expected the value to appreciate. That has fortunately been born out, and our $200k home bought 15 years ago is now worth about $300k. However, when you factor in the interest paid on the mortgage, property taxes, homeowners insurance, and maintenance costs (just paid $5k for a new AC unit), the rate of return on that initial $200k is not looking very good.

Now, we are within a few thousand of having it paid off, and home values continue to rise in our area. It is reasonable to expect that, long-term, we will start pulling farther ahead if we stay in the home. But how many people in this day and age stay in a home long after it's paid off? I would guess a very small percentage.

The answer is it depends. I bought my house for $225K five years ago. Today it is worth $350K. That's $125K appreciation in 5 years, or $25K in my pocket for every year I have lived here. I'd call that an investment. The timing worked out perfect.

I have never thought of a house in terms of an investment first, even though it is always in the back of my mind. Unlike stocks and bonds, the primary motivation is always as a home to live in. But the criteria I demand in a house (location, school districts, quality of build, quality of neighbors, etc) are all criteria for resale value. Before moving recently, the houses I have bought and sold in CA all have made money, one of them an unbelievable amount. And I realize in my current home that will not be the case. But the above criteria was met and there is no indication that home appreciation will not be possible.

But I agree with the sentiment that a 2 million dollar house is only worth that amount only if it sells. Otherwise, it is just a numerical figure in the sky.

quote:

Originally posted by jaaron11:
Homes are generally not a very good investment. I think the OP put it well when he said it is a necessary expense with a forced savings component.

We bought a house in an area where we reasonably expected the value to appreciate. That has fortunately been born out, and our $200k home bought 15 years ago is now worth about $300k. However, when you factor in the interest paid on the mortgage, property taxes, homeowners insurance, and maintenance costs (just paid $5k for a new AC unit), the rate of return on that initial $200k is not looking very good.

Now, we are within a few thousand of having it paid off, and home values continue to rise in our area. It is reasonable to expect that, long-term, we will start pulling farther ahead if we stay in the home. But how many people in this day and age stay in a home long after it's paid off? I would guess a very small percentage.

Take a measure of comfort in the fact that you didn’t burn through around $180k on rent over that period.

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Originally posted by arfmel:

quote:

Originally posted by jaaron11:
Homes are generally not a very good investment. I think the OP put it well when he said it is a necessary expense with a forced savings component.

We bought a house in an area where we reasonably expected the value to appreciate. That has fortunately been born out, and our $200k home bought 15 years ago is now worth about $300k. However, when you factor in the interest paid on the mortgage, property taxes, homeowners insurance, and maintenance costs (just paid $5k for a new AC unit), the rate of return on that initial $200k is not looking very good.

Now, we are within a few thousand of having it paid off, and home values continue to rise in our area. It is reasonable to expect that, long-term, we will start pulling farther ahead if we stay in the home. But how many people in this day and age stay in a home long after it's paid off? I would guess a very small percentage.

Take a measure of comfort in the fact that you didn’t burn through around $180k on rent over that period.

No question that home ownership is, in most cases, a better use of money than renting. It's just not a good investment when compared to, say, a decent mutual fund. I think of it in terms of off-setting part of your living expenses through value added.

Bought a 4/2.5 split level in 1980, sold 2015 in a neighborhood with a respected zip code. My profit covered all 35 years of property taxes ( $10K the last year) and half of the Homeowners insurance costs. This is simple math not taking into account inflation or the opportunity cost of money. I used 3 different forms of creative financing and paid them all off within 7 years.

I think back on it as a really good deal rather than an investment.

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Originally posted by mrvmax:

quote:

Originally posted by Oz_Shadow:
Buying a house is how you hopefully live rent free and if lucky, profit one day.

It’s normally never rent free. My house has been paid off for several year, there’s still taxes, insurance and upkeep to pay.

If you were renting, your rental rate would be paying someone else's taxes, insurance and upkeep.

When I factor in interest, homeowners, taxes, no it’s not the best investment. It has increased in value over 200k in 12 years. And it’s going up $50k per year right now so it will turn into one. I have a number in mind and when it reaches that I’m out and it will find my retirement property in another state.

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Originally posted by mrvmax:

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Originally posted by Lunasee:
I bought in 1999 for $160K. Assessed last year at $326K. Definitely a good investment.

Assuming you can sell for that and the assessment is correct. The bad part in Texas with appreciation in home values is increased taxes throughout ownership. As the value goes up taxes go up too.

...and another note that's often ignored in these discussions: Inflation.

$160,000 in 1999 has the same buying power as $240,657 in 2018.

So you could say "my home value doubled"...and while it appreciated significantly...it's not as much as it appears.

Just a thought - Sorry if it was pointed out earlier and I missed it (?).

- Brian

I bought in November of 06.

Worst investment I ever made - I'm not under water, but it is still worth 20K LESS than I paid for it 12 years ago.

Taxes are another consideration.
You can keep up to $500,000 profit on your residence tax free if you've lived there two years out of the last five now.
Even before that, you could roll the profit into the next home and not be taxed.
Also the mortgage interest and property taxes are deductible but not so for rent.

Bought our house for $79K in 1995, worth about $350K now. Who knows where it will be when the bubble bursts? I won't see a dime from the gain or loss but my kids will, and that's fine by me.

Out here in Komifornia and the SF Bay Area buying 16 years ago was a great thing.

In 2002 I paid $505K. Today it's worth $1.2 Million and going up.

Crazy pricing out here.

Bought our house in 2007 as in investment/asset for $218,900, sold few months ago for $260,000 nothing like others but we did ok.

Like others, I don't consider a house an investment. That being said, we have always sold for more than we purchased. We were extremely lucky when we moved to southern California for 5 years. We purchased when the market was way down, and sold when the market was red hot.

quote:

Originally posted by David W:
Bought our house in 2007 as in investment/asset for $218,900, sold few months ago for $260,000 nothing like others but we did ok.

I think you actually lost money....

You have to also consider the time value of money and inflation.

$218,900 in 2007 is worth $272,528.42 in buying power today. Your house didn't even keep up with inflation and the money you invested in your house back in 2007 is worth worth less today than what you started off with.

The average stock market return over the past 10 years is 6.88%. If you had taken your $218,900 and invested it, you'd have $425,804 today.

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Originally posted by Aeteocles:

quote:

Originally posted by David W:
Bought our house in 2007 as in investment/asset for $218,900, sold few months ago for $260,000 nothing like others but we did ok.

I think you actually lost money....

You have to also consider the time value of money and inflation.

$218,900 in 2007 is worth $272,528.42 in buying power today. Your house didn't even keep up with inflation and the money you invested in your house back in 2007 is worth worth less today than what you started off with.

The average stock market return over the past 10 years is 6.88%. If you had taken your $218,900 and invested it, you'd have $425,804 today.

That is not exactly a fair assessment at all.

1. Mortgage interest is tax deductible. So the after tax cost is 1 minus his marginal tax rate. Assuming he was in a 20% tax bracket, he only pays 80 cents on the dollar (interest portion only, not principal).
2. I am assuming he did not pay cash for the house. He did not plunk down $218,900 in cash as you cited in your example. Say he put down 10% or 20%. Where can you buy $218,900 worth of mutual funds with only putting down 10% - 20%?

It's called leverage. Unfortunately leverage can either leverage up OR down your returns, but the math in your example is clearly wrong. It would also exclude the cost of capital.

When you factor in interest, taxes, insurance and maintenance plus inflation I am not so sure its a great investment. But you have to live someplace.

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Originally posted by Scott in NCal:

quote:

Originally posted by grumpy1:
Absolutely not. While it is nice to see a home increase in value it is nothing compared to growth of stocks over time. Also with the new tax plan, the tax advantages of owning a home no longer exist for most of us. Those of us saddled with extremely high property taxes also tax another big hit on home ownership return costs. IMO one of the biggest mistakes many take is buying a home they can barely afford and thus neglecting other investments such as stocks to pay PI and taxes on their home.

I need to hear more about the stock thing works better than home ownership. Not the real numbers but close. East bay San Francisco, 1991 bought a $150,000 house, paid $30,000 down. Property taxes and interest all were tax deductable, including interest rates so low that after deductions it was practically free money. Monthly cost to me, even then was less than renting a similar house. Comps right now are selling for $700,000 and up. A married couple, so long as they have lived in the house 2 of the last 5 years does not pay any capitol gains tax on the first $500,000 of appreciation. So it sells for $700,000. Subtract from that that the $150,000 we paid, the $500,000 exemption and the $50,000 or so in sales cost , our original investment of $30,000 netted us tax free $650,000 . Right now a house in this neighborhood rents for maby $3000 a month, rent we dont pay. I think we were idiots for ever investing in our 457 and 401k defered comp programs. We are in a higher tax pracket now then we were when we were contributing to them. So, how do i make $650,000 tax free on a $30,000 stock investment that also provides a stable place to raise a family?

Here is a calculator of return on SP500 index over time with dividends reinvested. There are several low cost funds that mirror the SP500 index.

https://dqydj.com/sp-500-return-calculator/

If you would have also invested $150,000 in an SP500 fund in June 1991, ideally in a 401k or IRA, it would be up about 1186% (9.86% annualized return rate) to $1,779,000 for a gain of $1,629,000. Some of my funds are up 1500% in the same time period and are in an IRA I have.

If your home with initial investment of $150,000 appreciated 1186% it would be worth about $1,779,000 today by comparison or $1,079,000 more than your estimate of your home value which most would consider very significant difference. Your estimate of $700,000 home value would also need to be adjusted downward for present value of anything spent on insurance, selling costs, home improvements, home repairs, maintenance expenses, etc for a valid comparison to returns on stocks.

Yes property taxes and interest are deductible but not tax exemptions so I am sure you spent significant amounts on that over the time period but yeah we all need a place to live and IMO owning is better than renting for most of us. You did well with home appreciation over the years but over time stocks in the major SP500 index have "averaged" about 10.5% a year return when dividends are reinvested.