The Benefits of Home Ownership?

[gmillerdrake]

Brian....that gazebo looks good     Good luck with the tree removal.

Eric.....that turned out awesome!! Real nice work 

[Cool Chris]

Didnt use any plans....just built from scratch and fixed my screw-ups as I went along.  A couple posts twisted which made for sme frustrating days...

Dang, nothing I ever do without plans ever comes out well.

My wife and kids use this shower more than our indoor showers!

I totally would too! Outdoor showering is the bomb!

[TAC]

Wow, that outdoor shower thing is great!

[eric42434224]

Thanks everyone!  Much appreciated.

[Chino]

I'll ask the question that everyone is wondering but afraid to ask.... or maybe I'm just a perv..

You do it under the stars yet?

[gmillerdrake]

I'll ask the question that everyone is wondering but afraid to ask.... or maybe I'm just a perv..

You do it under the stars yet?

I'd have thought that's a given 

[Lonk]

You do it under the stars yet?

Don't need a shower for that 

[gmillerdrake]

You do it under the stars yet?

Don't need a shower for that 

well...... it depends

[mike099]

The wife and I paid off our house last week.  We owed 25K and just decided to take it out of savings and be done with it.

We should have had it paid of years ago, but made some dumb mistakes with cars, etc.

My advice for younger folks, is try and get rid of the car payments and pay extra on your mortgage.  You will be surprised how much faster you can pay it off.  Of course first make sure you have an adequate emergency fund.

BYW, that gazebo and outside shower are awesome.

[Chino]

The wife and I paid off our house last week.  We owed 25K and just decided to take it out of savings and be done with it.

We should have had it paid of years ago, but made some dumb mistakes with cars, etc.

My advice for younger folks, is try and get rid of the car payments and pay extra on your mortgage.  You will be surprised how much faster you can pay it off.  Of course first make sure you have an adequate emergency fund.

BYW, that gazebo and outside shower are awesome.

Thanks on the gazebo. I'd push back against the paying off your mortgage thing a bit pending your age. For a while I was trying to throw an extra $100-$150 a month at my principle payment, then I realized investing that same amount every month instead would lead to more benefits down the road than paying my house off a couple years early. That's what I'm hoping for anyway.

[Cool Chris]

I was foolishly hoping being furloughed for 2+ months would allow me to work on some house projects. Then I realized I would also be responsible for my 2 year old all day since we aren't taking her to day care. Fortunately we did not have any big projects on our calendar for this year. I was able to build some planter boxes for my wife who wanted to take a stab at growing vegetables and herbs. 

[jingle.boy]

Congrats Mike  .  Nothing more liberating than having no mortgage payments or a lien on your own goddamn property.

[lordxizor]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

[jingle.boy]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

I have an economics degree, and every single time I hear someone say "in theory ...", my I'm reminded that in theory, Communism works.

[King Postwhore]

Well we accepted a quote to redesign our bathroom.   Mold issues so everything comes down including walls.

[lordxizor]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

I have an economics degree, and every single time I hear someone say "in theory ...", my I'm reminded that in theory, Communism works.

Maybe "on average" would have been better than "in theory", but yeah, point taken. A guaranteed 4% return (or whatever your interest rate is), which is essentially what prepaying your mortgage gives you, isn't definitely worth considering.

[jingle.boy]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

I have an economics degree, and every single time I hear someone say "in theory ...", my I'm reminded that in theory, Communism works.

Maybe "on average" would have been better than "in theory", but yeah, point taken. A guaranteed 4% return (or whatever your interest rate is), which is essentially what prepaying your mortgage gives you, isn't definitely worth considering.

By and large, it depends how risk averse people are.

[Chino]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

Well, that's why I said "pending your age". I made that decision when I was 26. It'd be a different choice to make if it was a 40+ year old looking at the same problem. Starting that at a young age and having that extra money in the market for an additional 10 years should be well worth it. If I was later in my life, getting rid of that mortgage payment might look more appealing though.

[eric42434224]

Yeah you guys got it.  Depends on risk, time frame, rates, investment, etc.  I will throw in another factor.... taxes.  Maybe you can write off mortgage interest.... maybe the investment is tax free or tax deferred, etc.

And to answer another question:  can’t see a ton of stars from the shower lol.... pretty developed here..... not like back home in upstate NY and VT.  But due to a lack of hand rails like in a normal shower, I am building the bench so it is safer and more comfortable to “look at the stars” whilst in the shower with Mrs. 42434224.

[Chino]

 

[lordxizor]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

Well, that's why I said "pending your age". I made that decision when I was 26. It'd be a different choice to make if it was a 40+ year old looking at the same problem. Starting that at a young age and having that extra money in the market for an additional 10 years should be well worth it. If I was later in my life, getting rid of that mortgage payment might look more appealing though.

Yeah, I figure 10+ years in the market is going to beat 3.75% return nearly every time. Less than 10 years, paying off the mortgage and getting a guarantees 3.75% sounds much more appealing.

[eric42434224]

Yeah, in theory you should do better investing that extra money in an S&P 500 index fund rather than paying off your mortgage (assuming you have a good interest rate). But having a paid for house would be pretty awesome. I definitely want to get mine paid off by 60, so I'll probably start accelerating that when I'm 50 or so.

Well, that's why I said "pending your age". I made that decision when I was 26. It'd be a different choice to make if it was a 40+ year old looking at the same problem. Starting that at a young age and having that extra money in the market for an additional 10 years should be well worth it. If I was later in my life, getting rid of that mortgage payment might look more appealing though.

Yeah, I figure 10+ years in the market is going to beat 3.75% return nearly every time. Less than 10 years, paying off the mortgage and getting a guarantees 3.75% sounds much more appealing.

Nothing wrong with that calculus.  Just remember not to deplete emergency funds to get that “feel good” of paying off the mortgage.  Other higher debt, and emergency savings take priority....but I’m sure you already know that.

[lordxizor]

Of course. I'm debt free apart from the mortgage already and have plenty of cash for a rainy day. I'm a good 10 years from feeling like it'd be better to pay off the mortgage than to invest.

[cramx3]

I will throw in another factor.... taxes.  Maybe you can write off mortgage interest....

This, for my loan being relatively early in a 30 year, I get a huge tax return writing off the interest and the pmi plus the property tax, not that it pays for it all, but these are reasons why I get a nicer tax return compared to others.

[eric42434224]

I will throw in another factor.... taxes.  Maybe you can write off mortgage interest....

This, for my loan being relatively early in a 30 year, I get a huge tax return writing off the interest and the pmi plus the property tax, not that it pays for it all, but these are reasons why I get a nicer tax return compared to others.

Well not anymore right?  It is the higher standard deduction, so you aren’t itemizing and taking the actual mortgage interest deduction, correct?

[lordxizor]

I will throw in another factor.... taxes.  Maybe you can write off mortgage interest....

This, for my loan being relatively early in a 30 year, I get a huge tax return writing off the interest and the pmi plus the property tax, not that it pays for it all, but these are reasons why I get a nicer tax return compared to others.

The tax deductions for mortgages are overhyped for most people. With the standard deduction being so high these days, most homeowners don't itemize anymore (especially if it's a couple). Plus the tax deduction is really only what you can write off above the standard deduction. If you itemize $15,000 and the standard deduction is $12,200, you write off $2,800. In the 22% tax bracket, that saves you $616. Nice, but not enough to get too excited about.

Buying a house for the tax deduction on the mortgage interest is a bit like having kids for the tax credit. It's a nice bonus, but shouldn't really be much of a consideration in deciding to buy a home.

[hunnus2000]

The biggest motivation for buying a house should be as an investment if you're in a situation to afford a 15 or 30 year note and have a stable job (I know, tough to say in these weird times) then real estate is the best investment.

[lordxizor]

The home you live in is a terrible investment. Real estate is only really an investment if you're generating revenue by renting it out.

For example, say you buy a $200k house at 4% interest. You will pay $144k total in interest over a 30 year mortgage. Assume your home value appreciates by 4% a year (which is around average) and you put 1% of the value of the home back into the home in improvements every year (on the low side, but reasonable).

After 30 years, you have a paid off home worth $625k. You've paid:
Principle: $200k
Interest: $144k
Upkeep: $112k
Total: $456k

You make a "profit" of $169k if you were to sell at that point (this ignore realtors fees, property taxes, insurance, cash out refis or home equity loans, etc for simplification). That's about a 37% return on your investment, which over 30 years is not great (in reality it would be less due to the above costs removed for simplicity).

To compare, I could put $300 a month into an S&P 500 index fund (total investment of $108k), get below average returns of 7%, and have $366k after 30 years. That's 240% return over 30 years.

Yes, the math is simplified and not exact and ignores several factors, but you can see how the home you live in is actually not a great investment. But your home is more than just an investment, it's your home. That's why we're willing to put up with poor returns on it because it's more than just a money generating thing. Just don't delude yourself into thinking it's a great investment. For most people, who are not diligent investors, it may be the only way they generate any wealth, so it that regard, it is a good thing to buy a home. But a diligent investor in the stock market should be able to get much, much higher returns than their home. None of this mentions that almost no one stays in their home for 30 years and is moving every 5 years or so and is playing realtor and closing fees that eat into their profits.

Rental properties are a completely different story. They are usually on par with stock investing if done right.

[jingle.boy]

Payments to home + property is a better investment than payments to rent. I think that’s the point that’s being made. As an investment alone, you're more than likely to get better a return on capital elsewhere. But, as an investment that also covers your living expenses, it’s hard to beat it.

[lordxizor]

Payments to home + property is a better investment than payments to rent. I think that’s the point that’s being made. As an investment alone, you're more than likely to get better a return on capital elsewhere. But, as an investment that also covers your living expenses, it’s hard to beat it.

A lot of the time, but not even close to always. It depends a lot on the cost of buying versus renting. It's pretty easy to argue for many people that they'd be better off renting and investing the difference. The trick is that almost no one invests the difference. So from a practical standpoint, if you're planning to live in the same place for 5+ years, you're almost assuredly better off buying. But if you're a diligent saver/investor/budgeter, it's not so simple.

My point is mostly that you shouldn't view the house you live in as an investment. The "investment" part of it doesn't return a whole lot compared to good investments. Your home is closer to a forced savings vehicle than an investment.

[jingle.boy]

I think your reasoning is flawed.  In your example:

After 30 years, you have a paid off home worth $625k. You've paid:
Principle: $200k
Interest: $144k
Upkeep: $112k
Total: $456k

you've also paid your primary shelter with all these expenses.

In your example:

I could put $300 a month into an S&P 500 index fund (total investment of $108k), get below average returns of 7%, and have $366k after 30 years. That's 240% return over 30 years.

You've paid precisely $0 in primary shelter costs over 30 years.  Add on minimum $800/mo with a 0% return, and your total outlay increases by $288k.  Total investment $396k for return of $258k (300/mo CAGR'd at 7%) is only 65%.

Also, 7% Avg CAGR for 30 years is pretty aggressive.
And real estate growth at 4% is pretty low.

Just sayin.

[Stadler]

Nicely done, Chad.  Seriously. 

[lordxizor]

S&P 500 averages over 9% annually
Quick research showed 3-5% on home appreciation historically, so I chose the middle ground.

My assumption on the $300 a month is that you could save $300 a month renting versus buying, in which case you end up with roughly twice as much money versus buying a house. Sure, the % gains can be interpreted different ways.

Anyway, the point wasn't to nitpick the math, only to show that a house you live in is not a "good" investment by the same measures you use to measure a "good investment" in stocks. It's a home that you get to live in that happens to gain equity over time.

[hunnus2000]

I can see where the math is pretty cut and dry but mortgage interest and upkeep of the property is, at least to me, the CODB. Build a pool? Yes it will raise the value of the property but just don't expect to get your full money back that you paid to install it. Foundation problems? Got to fix it. Interest? If you have a mortgage then you can't get around it.

If you keep your house for long enough and work to pay off the mortgage then you can come away with a windfall which is what I refer to as "Now Money"


 

[jingle.boy]

It's a home that you get to live in that happens to gain equity over time.

On this, we absolutely agree.