Do you really ever make real $$$ on your own home?

[JHZR2]

Hi,

Im curious... A lot of places and people claim that the best investment you can make is in your home. I have to wonder, in these high-flying markets, even with low interest rates, do people actually make money???

OK, here we go... Say you buy a $200k home. You get a regular 30yr mortgage, at, say 6%. You put the normal 20% down.

So, if life omes at you like it usually does, and you end up taking nearly 30 years to pay it off, you end up paying what? 200k in interest? Living in a state like NJ, you end up paying $6-8k on top of that for property tax, maintenance which, say averages to $1000/yr, and it doesnt seem that possible to me.

Sure, you might get 30c on the dollar back in tax refunds on the property tax and interest, but thats not a very good return.

Considering average returns over many years of what? 2-4%, but inflation that is likely about the same...

how do you really make money in it?

Sure, you do have to live somewhere, and apartment liing isnt really where its at, especially with a family, but especially with disproportionate rental rates, especially at a time like now, I dont see the possibility of making much... and I dont see double digit returns lasting for long either... Sellers are already starting to make larger and larger giveaways towads closing costs, etc.

Any comments?

Thanks,

JMH

 

[drm7]

I've never made more money than on a home. I owned a townhouse in Fairfax, VA (a hot market). I was in it for 7 months and walked away with nearly $30k. I bought my 2nd home in Southwest VA and lived in it for 3.5 years. I just sold it and walked away with nearly $50k. I put about $12k in upgrades while I was in it. I'm losing my @$$ in the stock market as we speak. You don't just get write-offs from the interst but also other things like, property tax, state income tax, charitable donations, etc. The federal married deduction was like $9500 last year. Thanks to my house I had nearly $20k in deductions. Got a nice check back. Also, I look at a house like a "forced" savings plan. Let's say I pay off the $180k on my house I'm hoping to build in the spring. Plus the $50k I put on the land. I'm estimating the market value to be nearly $400k when it's done and I'll have about $230k in it. I plan to sell and downsize in retirement and pocket the difference. Even if you sell it with only 4% growth over 30 years you'll have several hundred thousand in retirement. JMHO

 

[Pablo]

All said and done a home is not an investment. It's a place to park your carcus, raise kids, make whoopee, build crap, store oil, start a small business - you know - live.

However, I have never actually lost money on a house. The least I have made was $30K, but the usual is $50K-$100K. Last one? Over $200K - when we close in Nov. Does this include expenses, etc. No (but does include RE ripoff commissions) - because I consider everything to improve the quality of life while we are there - but if you want to cut my profits down by 10 or 20%, go for it.

Yeah the interest and property tax are nasty and you only get your bracket back - but in a rental you still get invisibly charged and you can't write it off!

I agree the market is slowing, though.

 

[kloppilt]

You gotta live somewhere. It's better to build your own equity than pay someone else's mortgage.

And when you count the inflation (and if your income keeps up with it), in a few years the principal amount you borrowed become less valuable while your real estate hopefully appreciates and at least keeps up with inflation.

Saying that, if you buy into the bubble and it bursts before you get out, you'll be in big trouble - you will owe more than the house is worth.

 

[Bryanccfshr]

I lived for free for 4 years in my last home when it is all added up. (182 purchase sold for 259 plus the tax writeoffs for interest paid) The one we are buying this month will end up being rolled into a rental. So yes, a home is the best way to build wealth. That is unless you are in one of those really crazy markets then you have to weigh the risk and if you don't have an appraiser you trust (not a bank's appraiser,the banks want to sell you a loan) Be carefull.
There are alot of houses on the market that simply can't honestly appraise for the asking price. But there are appraisers who will bump it..That is when the buyer is screwed. Never buy the most expensiove house on the block. All that common sense stuff.

I am fortunate to have a wife who earns commision for this stuff. She just made a sale that will out earn me this month..

 

[Shannow]

I'd rather be paying off a home than throwing it at someone else. Also, I beleive that in retiurement, owning the place you live is the only way to be able to survive.

That being said, the average Oz mortgage now means that people have almost no or insufficient retirement income...they own a house, but can't afford the cat-food.

So I bought a fairly cheap, old house , paid it off early, and am saving for the next (small) step...$600k mortgages scare me.

As an aside, a new range of companies have sprung up, offering to "loan" retirees money against their homes, 15% of value at age 60, up to 45% at age 85. They pay you weekly or lump sum, then build interest against the loan. When you cark it, they get their slice of the estate.

That way you get to pay interest twice on your "investment"

 

[Gary Allan]

We have them here. They're called reverse mortgages. Effectively your house is being bought from you on a monthly basis.

 

[Al]

I have heard some Financial "experts" tell you that it may be a way to increase "wealth". But it doesn't translate into tangible wealth beyond the house. Its a "holding tank" Peeps don't use their home except to take care of themselves in a nursing home or more commonly pass it on to their airs.

So in a real sense, a house does not lead to enjoyment of "wealth" in life and actually takes away assets that allow to enjoy life.

Definately true in my case. My house cost 21.5K in 1972. It was paid for in around 1987. We didn't put a whole lot of money in the house over the years. It worked pretty good for us.

 

[drm7]

I plan to use mine to increase my wealth for retirement. I plan to have the kids out of college when I'm 60. After I retire I'll sell my house and "downsize". In fact, I'm considering building my retirement house and renting it for the next 20 years. Let someone else pay it off then I can pocket my entire house for living expenses. I'm not counting on my employer or Uncle Sam to help me in retirement. The way things are going neither one are going to offer much.

 

[Al]

That's what I planned on doing. My kids were out of college when I was 53. I retired at 55 but by that time I had no inclination to move.

 

[kenw]

quote:

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Originally posted by drm7:
.....After I retire I'll sell my house and "downsize". .....

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realize that your "one-time-capital gain" allowance has a cap on it.

 

[Willy_G]

The trick is to buy low and sell high...the age-old gammut.

 

[JHZR2]

What about parallels to periods of not-so-fast growth or periods with high interest. Maybe Im wronge, but it seems to me that you'd be hard pressed to find someone who did NOT do well owning a place, regardless of interest rate, property tax or how much/little they were leveraged... simply because of double digit gains. Its like buying tech in 95-00... it was easy to make money, period.

What about in areas where home values have been relatively the same year after year?

Yeah sure, I could build equity, but currently I pay $800/mo for 2br, 2ba apartment with ~1200 sq ft.

In NJ, anywhere with any sort of reasonable commute (driving expenses are going to cut into profits, etc), with a reasonable school district and good town, 2br 2ba will easily be 180-200k, for a fixer upper. Tough to realize any profit vs my current rental rates, I think...

Then again, where is my moey going when renting? But, then again, if Im paying 6% interest, thats a LOT of money down the drain... more than the $9600/yr Im paying in rent. And even if I get 1/3 of the $12k in interest Id be paying back as a tax refund, I still have property tax and whatnot else to pay...

Hard to justify, yet I dont want to be renting and "throwing away" my money... I guess the question really is, all expenses considered, which is throwing away money more?

Its not like I have kids and whatnot... At best, my biggest need is a garage to keep my cars.

Thanks!

JMH

 

[Bryanccfshr]

http://www.fortune.com/fortune/investingspecial/articles/0,15114,455739,00.html

http://biz.yahoo.com/pfg/e42save/

Suze Orman, My wife likes her alot.

 

[kenw]

Closer to work, nicer schools all contribute to the market price, so in reality they figure in nicely. The same exact house on the same exact size lot can vary by 30-40-+% depending on location, location, location.

But yes, in a nutshell you are suggesting that buying somewhat BELOW one's maximum capacity for debt burden is somehow a good thing.

It's absolute heresy! You must maximize your debt to maintain the economy!

we did it anyway and always have. we'll have our house paid off in 4 years when I am 54. We bought in 1987 for 78k, current appraisal is 150k. We refi'd 2x to mostly reduce the term with = payments and rolled all the major costs into the note. When we pay it off, we aren't planning to sell, just live in it and do something else with $800/month.

Profit? Not an issue, we'll let the kids figure that one out. Cash flow for us while retired? Big issue!

 

[JHZR2]

ee, my parents have always done that... and they own 3 properties. They have always lived below their capacity... and it worked nicely, as we were always comfortable, I have no college debt, etc.

It seems harder and harder these days...

I am just one income... Getting married would theoretically help things out a lot...

man... $800/month would be nice... Id pay property taxes on top of that and be really happy!

Tough to find in NJ in general, especially where I reside, which has been historically the NYC suburbs, and will someday be the Phila. suburbs.

JMH

JMH

 

[drm7]

KenW: the one-time capital gain doesn't have to apply to your house as sale of primary residence is tax free if you've lived in it more than 2 years. I do think there is a cap though. You can use the one-time gain on a rental property or some other investment. The usual caveats apply "check with your local tax consultant". I only play one on the net.

JHZR2: I have several friends here in VA from good ole NJ. They moved here for the exact reasons you are stating. Cost of living! They scraped together and just built a $140,000 Cape Cod home on a $16,000 lot that appraised for $269,000. They just increased their net wealth by $113,000. I believe a house is like a savings account. For most people, whatever they don't spend on a house gets ****ed away then you end up retired paying a perpetual rent to someone else. I think that paying rent in retirement will be the killer. Get a house paid for and you have rent free living except for property taxes. That's why I plan to downsize. It will reduce my tax burden as well as put spare cash in the bank.

 

[JHZR2]

Thanks!

I guess that I should clarify that I do intend to purchase my own home, and do so within the next year or so. Im not rushing it because things seem to be declining a slight bit and Im waiting to find one that really suits me... There are always plenty of homes that pop up on the market.

Im just not convinced that, especially entering at this point in the game, I will ever make any money on a home, unless I upsize and then rent the current one out in a cashflow positive situation.

JMH

 

[rpn453]

quote:

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Originally posted by JHZR2:
OK, here we go... Say you buy a $200k home. You get a regular 30yr mortgage, at, say 6%. You put the normal 20% down.

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One of the first things our economics prof told us was to never go over 20 years on a mortgage. The interest shoots up after that so the monthly payments aren't even much less.

I think homes are a good investment if you live in one that you can actually afford.

 

[michaelc80]

Why not buy a starter home (200K ain't a starter home) and build some sweat equity in it?

Our first home we purchased for $35,500 in 1989. Invested about $16,000 into improvements, did all the remodeling work myself, lived there for 8 years and sold it for $70,000. Rolled the money into the place we have now which was purchased for $120,000 in 1997. Current assessment is over $200K with the improvements we've made (about $30K) and property value increases, but we owe less than $100K on it (we took out a 2nd mortgage to build the shop then refinanced it into 1 mortgage). The key is to know the neighborhoods and be willing to work for the equity. Too many people want to start at the top and work up from there.