Of course, he didn’t have $150,000 to invest in cash in 1991, and borrowing that much to plumk into the market would violate the margin requirements.

He also would have no place to live while he was getting rich on money he didn’t have.

Here is the list of annual S&P annual performances 1991 to 2017, from the Berkshire Hathaway Chairman’s letter. Link

30.5
7.6
10.1
1.3
37.6
23.0
33.4
28.6
21.0
(9.1)
(11.9)
(22.1)
28.7
10.9
4.9
15.8
5.5
(37.0)
26.5
15.1
2.1
16.0
32.4
13.7
1.4
12.0
21.8

I don't know if he did or not, just trying to make a valid comparison to performance of SP500 index versus real estate in his particular situation as he inquired about.

quote:

just trying to make a valid comparison to performance of SP500 index versus real estate

I know house flippers that have doubled their investment within a week.

We can compare different types of investments or the associated returns all day long. Doesn't change the fact that they are indeed investments (which was the original question).

First house: solid investment - appreciated some

Second house: amazing - almost doubled in value in 4 years

Third house: bad investment - sold for less that I paid 13 years later - helped with taxes though so there's that to factor in...

So FWIW I have mixed results

-----------------------------------------

Definitely an investment for my wife and I. But then again our plan is to sell in a very expensive market and move to a more affordable market. Our kids on the other hand will have to move from this current area in order to afford something within their price range.

For a family, looking for a single family dwelling, I think owning over the long term (able to ride out up/down market cycle) is more cost effective than renting. You are going to have to have some cost for where your family resides - rent versus mortgage. There is risk with a mortgage (maintenance, market value) - risk is generally rewarded to a degree. Rental owners make money in most markets over time, they carry the risk of occupancy, maintenance, and the market. Renters do not carry that risk, but have a fixed rate of payment for housing without risk of capital loss. Standard economics there.

There are situations where it makes sens to rent, and I wish I had done so at one point in my life where I was a home owner - bought at the height of the market in 2007, in a town that was new to my family with a new to me job, sold pretty much at the bottom in 2010, found a better job with much better odds of long term roots. On the up side, I also bought my new house at that time, and while I lost upwards of 30k on the first, I purchased a house at a significant discount (and then refinanced at the bottom of the interest rates) and am well into positive equity now, if you believe valuations. I plan to stay for a long time if my situation allows, but I know this is not our absolute forever house - I hope for another near retirement, but that is 20+ years off.

If you could invest your living expenses, sure owning a home makes no sense. But you cant, and should consider the opportunity cost of those dollars versus the risk you assume with ownership.

Comparing a home to a stock isn't the right comparison. Comparing a home to other ways to create a place live is more reasonable. Renting VS owning is really the question.
Unless you are able to live somewhere else for free, you don't have that money available to invest.
Apples and oranges.

quote:

Originally posted by JALLEN:
Of course, he didn’t have $150,000 to invest in cash in 1991, and borrowing that much to plumk into the market would violate the margin requirements.

He also would have no place to live while he was getting rich on money he didn’t have.

Here is the list of annual S&P annual performances 1991 to 2017, from the Berkshire Hathaway Chairman’s letter. Link

30.5
7.6
10.1
1.3
37.6
23.0
33.4
28.6
21.0
(9.1)
(11.9)
(22.1)
28.7
10.9
4.9
15.8
5.5
(37.0)
26.5
15.1
2.1
16.0
32.4
13.7
1.4
12.0
21.8

My thinking also. I never had anything like $150,000 in 1991. The 20 % downpaymen, $30,000 included a "gift" from my uncle of $10,000 that i paid back over a couple of years. So my actual investment was $20,000. $20,000 at 10.5% interest for 27 years is more like $300,000. Just a guess but lets assume a average monthly rent on this place at $2000 a month, times 27 years for the years equals $650,000, give or take.
(Yes i understand time value calculations would reduce it a bit, but only a bit). So renting thia place as oppose to owening it would have set me back $300,000+-, till now. I could be renting at $36,000 a year, being dependent on the wims of some landloard or paying $3,600 in property tax. (love prop 13). Also unexplained, is how to get $650,000 out of the stock market tax free. In addition an equity line of credit was used several times to buy other realestate, 2 other rental Bay Area houses and 7 quarters of land in North Dakota, that has done equally well as my house. Cash talks. Those deals never would have had happened if my opening offer included " let me scratch around and see if i can come up with the money, maby borrow against my stocks".

You are investing the purchase price plus a butt load of interest. You do the math

don't forget to include the costs of ownership such as maintenance, repairs and remodeling

It can be a great investment if you can avoid the interest payments of a standard 30 year mortgage. Most people don’t have a couple hundred grand lying around. So let’s say you “invest” in a $200,000 home. You make a standard down payment and you finance the remaining amount over 30 years. Depending on your interest rate, by the time the loan is paid off, that $200,000 home will have cost you somewhere around $350,000 to $400,000. The question then is “What would that same home sell for today?” Most real estate markets don’t appreciate enough in value to recoup that mortgage interest.

Yes. It's the single most expensive thing I own and the equity I have in it is considered part my my worth and would be used if I ever bought another house. I take care of it and protect its value. It is most certainly an investment.

My father never believed in owning a home, we always rented. Always at the mercy of landlords. I promised myself not to fall into that trap. Satisfaction in owning. Or like my mother said "I can put a nail in the wall without the landlord flipping out".

I sold my home when I retired because my wife wanted to be near her/our grandkids, and her sisters.


Can't say I made a profit, but it was paid off, and we got more than twice what was paid for it. We downsized when we bought our present house, and have put some of the left over money from the sale into needed repairs.


Owning your own home free and clear of a mortgage is a great feeling. Is it a good investment? Beats the hell out of paying rent, in my opinion.

If you're investing the full purchase price, you're not paying a buttload of interest, because you paid full cash.

If you're paying interest, you took out a mortgage, so you invested the down payment and closing costs. This is a significantly smaller number (and you'd have the closing costs if you paid cash anyway.) As far as the interest, interest rates on home mortgages is about the cheapest form of debt there is, and it's tax deductable.

This also goes back to the fact that you have to live somewhere. If you rent, you're basically paying all the ongoing expenses you'd be paying to own, plus the owners profit, just rapped up in one number (none of which is tax deductible to you.) You don't have the big up from costs. But you get no appreciation.

I do think a lot goes back to the market your in, if your in a market that gets good appreciation, even if the buy in is higher, it's probably worth buying, because rents will be higher also, and you'll be building a lot of equity. And if it's an area with a good job market, the housing costs get baked into the salaries, which will be higher. This gives you the opportunity down the line, especially if your retiring, to cash out the equity, buy something cheaper in a low cost market, and have a lot of cash left over. In that way the house really is an investment.

quote:

Originally posted by Hamden106:
You are investing the purchase price plus a butt load of interest. You do the math

quote:

Originally posted by nhtagmember:
don't forget to include the costs of ownership such as maintenance, repairs and remodeling

quote:

Originally posted by BBMW:
If you're investing the full purchase price, you're not paying a buttload of interest, because you paid full cash.

And foregoing collecting interest or other earnings in your capital.

quote:

Originally posted by Hamden106:
You are investing the purchase price plus a butt load of interest. You do the math

quote:

Originally posted by nhtagmember:
don't forget to include the costs of ownership such as maintenance, repairs and remodeling

mine has tripled in price since I built it 94 so yes I would say it is a good investment.


I built it by myself paying cash the whole way one of the benefits of being in the construction business, all you need is the materials and a little know how.

Yes, which is why most people take morgages (well that, and they generally don't have that much money available to pay cash.)

quote:

Originally posted by JALLEN:

quote:

Originally posted by BBMW:
If you're investing the full purchase price, you're not paying a buttload of interest, because you paid full cash.

And foregoing collecting interest or other earnings in your capital.

I'm in South Florida and have had to move for schools, so glad I am renting. I built my biz up when the market ran up in 2007 but when it burst so did my income. So when property values were the lowest I had no income. Rent was cheap and I could school bounce as I wanted.

Also, since I homeschool now, there is no way I could afford to buy the home I rent. I am about $3500 less a month than if I paid for it with $100,000 cash down and borrowed the rest. That doesn't even include repairs.

Having seen hundreds of my clients lose $100,000-$300,000 in market volatility on a home, I am plenty happy with where I am right now.

quote:

Originally posted by BBMW:
Yes, which is why most people take morgages (well that, and they generally don't have that much money available to pay cash.)

quote:

Originally posted by JALLEN:

quote:

Originally posted by BBMW:
If you're investing the full purchase price, you're not paying a buttload of interest, because you paid full cash.

And foregoing collecting interest or other earnings in your capital.

So if you don’t have it, you can’t pay it, and aren’t foregoing it. Your earlier reply assumes you did and could chose which to do.